29/09/15: Market Update No 3

A tough quarter...

Following steep overnight falls in Europe and the US, today our own market followed suit, with the benchmark S&P/ASX200 index down a hefty 195.1 points, or 3.82 per cent, to 4,918.4 points.

So far this quarter, local markets have fallen by just over 9 per cent. So with just one day left in the quarter, it is likely to be the worst period for investors since the third quarter of 2011, when the market fell 13 per cent amid an economic crisis in Portugal, Ireland, Italy, Greece and Spain.

This time however, the explanation is an easy one to understand – China’s slowing economic growth. Over the September quarter, and especially the past two months, China's manufacturing sector has come under severe pressure.

With iron ore prices flat lining over the quarter, oil prices down and the price of copper in free-fall, it’s easy to understand why Australia’s resource sector, which is heavily dependent on demand from China, is experiencing the perfect storm.

Remember, copper is viewed as a baseline for the health of the Chinese economy because it is used heavily in industrial building, housing construction and technology.

AMP Capital's head of portfolio management Debbie Alliston said China is the key factor in plunging share prices. "Markets are reacting to fears that this going to slow global growth significantly, particularly for those countries that are reliant on Chinese demand," she said.

Weakness in the Australian banking sector, amid moves by regulators to slow lending to property investors amid soaring Sydney and Melbourne home prices, has also weighed on the share market.

On top of that are the usual worries about the timing of a US Federal Reserve interest rate hike.

But Ms Alliston said members of superannuation funds with investments in a range of assets should not panic about the market's downturn, and sit tight instead. "This is definitely not another GFC," she said.

According to another analyst, the market's heavy fall has “Australian shares looking cheap, and stock valuations are probably near the point of luring buyers back into the market, especially with interest rates set to remain low.”

We'll keep Westmount clients updated on any important developments.

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

This update is published by Westmount Financial/Westmount Securities Pty Ltd (ABN 42 090 595 289/AFSL 225715). It is intended to provide general information only and does not take into account any particular person’s objectives, financial situation or needs. Because of this, you should, before acting on any information in this document, speak to us and/or a taxation/finance professional.