The Australian stockmarket suffered its nastiest sell-off for some time yesterday as investors took an axe to any company with a suggestion of either property, big debt, high gearing, or the prospect of adding any of these factors to its current business mix.
$43 billion was carved off the value of the local market in a world wide sell-down.
U.S. markets were closed for Martin Luther King Jr. Day, but the FTSE-100 in London dropped 4.7% to 5,625.20; France's CAC-40 Index plunged 5.9% to 4,793.39, and Germany's blue-chip DAX 30 slumped a massive 6.74% to 6,821.42.
In Asia, India's benchmark stock index fell 7.4%, while Hong Kong's Hang Seng index dropped 5.5% to 23,818.86.Canadian stocks fell as well, with the S&P/TSX composite index on the Toronto Stock Exchange down 4.8% and Brazil saw stocks shed 6.9% on the main index of Sao Paulo's Bovespa exchange.
Japan's Nikkei 225 index slid 3.9% to 13,325.94 points, its lowest close in more than two years. China's Shanghai Composite index was off 5.1%, partly on worries about mainland Chinese banks' exposure to subprime. mortgage investments
Investors mainly sold shares because they were skeptical that the $US150 billion economic stimulus plan President Bush announced Friday would shore up the economy that has been battered by the housing and credit crunches.
European, Japanese and Hong Kong markets are now in bear territory by being down by more than 20% from their peaks.
The Australian dollar was sold off as well, shedding more than 1.5 USc to trade just above 86 US cents in quite holiday trading in New York.
Oil fell under $US90 a barrel for the first time in a month to around $US88.64, gold dropped $US20 an ounce to around $US861 and copper fell 13 US a pound to around $US310 a pound in New York.
Dow futures are pointing to a huge slump at the start of trading tomorrow: down 500 points from Friday's close.
Here, BHP was sold off, Rio Tinto, the banks, and finance groups such as Macquarie Bank, Babcock and Brown, Allco Finance and MFS.
The banks all fell by more than 2.5% with the Commonwealth down more than 4%, on fears that they will be caught with bad debts from highly geared companies like Centro and MFS which are in trouble.
Only a few went against the trend: Djerriwarrh Investments, which reported a solid interim profit yesterday, Aristocrat, Woolworths, CSL, Crown and other stocks said to be defensive holdings at times like these.
According to Bloomberg it was ASX200's worst losing streak since its inception and the worst losing streak for the All Ordinaries since a 13 day sell-off which ended 26 years ago today.
At the close, the ASX/200 index was down 166.9 points, or 2.9%, to 5,580.4, and the All Ordinaries had shed 168.5 points, or 2.91%, to 5630.9
The local market has now fallen more than 18% from its record high in November and close to the 20% level where a bear market starts. It's down 12% so far this year.
National Australia Bank fell $1.06, or 2.9%, to $35.20. Commonwealth fell $2.42, or 4.6% to A$50.78, Westpac dropped 78c, or 2.9%, to $25.77 and the ANZ shed 73c to $26.20.
Macquarie Group fell $2.51, or 3.7%, to $65.71. Westfield Group, owner of 59 US malls, eased 21c, or 1.2%, to $17.80.
Shares in Challenger Financial Services Group and Allco Finance Group were hammered on Monday as investors dumped stocks with complex investment strategies that use relatively high levels of debt.
Challenger and hedge fund manager HFA Holdings Ltd were also hurt by their connections to troubled funds manager MFS Ltd.
Challenger's unlisted High Yield Fund holds a $36 million MFS convertible note.
By the close Challenger's shares had fallen 68c, or 14.5%, to $3.51 after a low of $3.41. Challenger told the Australian stock exchange it could see no reason for the sell off.
Allco shares fell 35% to $3.10 at the close, cutting the Sydney-based company's market value to $1.14 billion.
Investors are concerned Allco, a shareholder in five listed investment funds that carry its name, may be headed for the same fate as Centro Properties Group and MFS, which have seen their share prices slump as they struggle to refinance debt. Allco and its subsidiaries have $1.075 billion of bonds and loans due this year and a further $1.28 billion maturing in 2009,
HFA Holdings, the funds manager spun out of MFS in 2006, was down 14.5c at $1.155 cents, but had been as low as 71c.
HFA said an associated company of MFS, MFS Alternative Asset Ltd, held about 12% of HFA after a 19.4% stake was diluted by a rights issue by HFA late last year.
The rights issue was conducted to help HFA pay for its recent acquisition of US hedge fund manager Lighthouse Investment Partners for about $700 million.
The Lighthouse deal has been funded mostly with cash and equity raised through the rights issue. About $130 million was funded from debt.
Last week's troubled stock, Centro Properties, saw its shares rise against the trend today, but they eased in late trading to be down 1.5c at 46.5c. The units in the associated Centro Retail Trust fell half a cent to 30.5c.
MFS went into a trading halt yesterday morning as it replaced its chief executive and revealed it had received an expression of interest for its Stella tourism business from a number of parties.
MFS said Craig White was the new CEO, replacing Michael King who announced his resignation on Monday.
Property investor City Pacific withdrew its offer, made last week, for MFS's financial services business. That all share bid was valued at about $1.3 billion, well above the market cap for MFS of just $479 million at Friday's close of 99c a share.
BHP was sold off as a mooted new bid for Rio Tinto didn't appear. BHP shares lost $1.51 to $33.29 while Rio shares lost heavily, s
