February has seen a sudden surge of carnage across the ASX, as well as Asian sectors.
The Australian share market has seen a $60 billion fall in value, due to locals following US investors in a somewhat insane rush for the exits.
Every sector of the ASX has been affected, and it’s hard to tell what may be in store for the Australian stock exchange.
Australians weren’t the only ones hurt by this. Japan has dropped by 6.4% in the Global Market and Hong Kong has decreased by 5%. China has also copped a dent. Their shares have overall decreased by 2.7%. Japan’s Nikkei has plummeted by 6%.
Australian stocks haven’t been through this much turmoil since September 2015, when their shares dropped by a similar amount.
This all stems from the sudden drop in the US economy.
The US economy has gone through a lengthy period of rising share prices. For a long time markets have seen low interest rates and bond yields.
Now going into the new year, the US economy has made a sudden turn. Improving real economic data is likely to mean rising bond yields and interest rate. The stock market is struggling to adjust in an efficient manner.
The Australian economy seemed to be the first to be badly affected by this new change in the US dynamic.
Not only were Aussie stocks affected, but retail sales and the overall exchange in goods and services had a drop in turnover.
Gold mining company, Evolution Mining, managed to navigate themselves through the market carnage and somehow maintained their selling rate, while not being affected by drastic drops in the exchange.
Gold prices held on Tuesday, standing at $1,339 an ounce and even rising at 0.5% at the start of the week.
Gold miners were lucky not to be too affected by this sudden market correction. But not everyone was fortunate enough to escape the carnage.
What happened to the Aussie stock exchange
Just about every sector of the ASX 200 has taken some blows. Technology, energy and health care dropping by roughly 4.5% each.
Big energy sector names such as Origin, Santos and Woodside Petroleum crashed down by more than 6% each.
Weak global oil prices played a significant factor in the overall drop in energy stocks. They may struggle to find a solution to this mess.
Retailers are also suffering significantly. JB HI-FI shares suddenly dropped by 2.3%. After their positive increase all throughout last year, they’re now seeing the other side of the coin.
However, this drop hasn’t put them in too much of a negative light. Their consistency in share price increases throughout last year has given them some reinforcement against unfortunate circumstances.
It’s safe to say JB can bounce back if they maintain their relevant business platform and stick to their agenda. Their market cap still sits at roughly $3,124 million, with steady share prices.
Harvey Norman also suffered a drop in shares, shredding 2.9% in their stock value. Unlike JB they have been dropping steadily since Friday last week, and continue to do so since the ASX market drop.
Their prior falls may have nothing to do with the wider ASX, but competitors such as JB and other retail groups becoming more difficult to deal with. Customers are shifting to JB at a significant rate.
The increase in JB store variety shows how tenacious they are with their overall expanding agenda.
Super Retail Group has suffered more than the both of them. Their shares have plummeted by 3.4%, displaying a weak market value overall. Like Harvey Norman, this all doesn’t just stem from the ASX drop. But this fall very much does not help their current situation, and may potentially set things back.
Telstra shares are suffering, as they’re now down by 3% at roughly $3.51. The network provider saw some tough times during the climax of 2017.
The introduction of the NBN (National Broadband Network) came to a shaky start, as its performance and connectivity rate was and still is underperforming significantly.
Many customers were displeased by the overall service, and their loyalty to the brand was beginning to shift. Telstra was even offering discounts to those with poor connectivity rates.
To top things off, the ASX went through this market shift and made things even harder for Telstra. Talk about a stroke of bad luck!
It’s obvious that the market drop has derailed a vast number of companies’ expansion agendas.
Business plans have been cast off by this sudden crash. Companies may need to improvise future decisions in order to fully recover.
The banks couldn’t manage to dodge the stock bullets, either. All four major aussie banks dropped in shares. Westpac suffering the most dropping by 3.1% and National Australia Bank suffering the least with only a fall of 2.4%.
How to bounce back after the crash
One would think that most large scale organisations would prepare for events like this, and have a plan to counter the effects. However, this week’s chaos shows that Aussie companies didn’t prepare for such an occurrence to happen.
They had grown so comfortable with the US dollar and low share market value that they focused more on expansion preparation. A smart move for a while. But it did have unfortunate results, in the end.
This crash isn’t necessarily a bad thing. America has had a steady increase in jobs, and the market correction is merely a natural occurrence that goes along with it.
Australia has managed to recover some of its losses already. But many companies havn’t quite made it out of the woods yet.
Some companies, like Lifehealthcare Group have pulled through, shining some light on the health sector as their shares have gone up by 40.5% in a takeover bid.
If some businesses want to make it to the light at the end of the tunnel, they’ll need a sense of patience as well as reassurance.
Less short-term spending and a steadier approach should be implemented in order to counter the negative effects of the market crash.
This isn’t a major recession like the one that occurred back in 2008. Many global markets have been in freefall, but it’s a part of the natural flow of markets, with everything that’s happening in the US and other countries.
As a major trading nation, one that exports food and raw material to the rest of the world, Australia has to expect to be affected in one way or another.
Publisher, Money Morning
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