The millions of Australians who own shares are set for an ugly morning, as the Australian Stock Exchange opens after Wall Street's dramatic plunge on Friday. Some analysts are tipping that the Australian market will fall 2-3% today, following the 390-point (or 4.6%) decline in the Dow Jones industrial index on Friday - the seventh biggest fall in United States stockmarket history.
Few analysts expect the Australian market to perform as badly as Wall Street, which continues to be whacked by corporate accounting scandals, weak earning reports from some companies, and fears of more terrorist attacks on the US. "We have one of the best economies in the world and the profit outlook for many Australian companies is fine," one analyst told The Australian newspaper today. "It's too late for people to be jumping out of the market now; the time to sell was near the top, not when the market is near the bottom."
The Australian market has held up well during the recent downturn in world markets. Last week, the Australian market fell 2.5%, compared with the 8% decline recorded by the Dow Jones and the Standard & Poor's 500 index. But with the Dow Jones sitting at its lowest level since October 1998, no one is sure how long the current bear market will last. A protracted downturn in the US market will hurt the Australian market.
The Dow Jones has fallen in eight of the past nine weeks, despite US Federal Reserve chairman Alan Greenspan's recent upbeat comments about the US economy, and the moves by the US Government and corporate regulators to stop accounting trickery and fraud. Many US investors are panicking and pulling their money out of the stockmarket. News reports from the US over the weekend were dominated by comments from retail investors who have lost faith in the equities market and have decided to move their money to other forms of investment.
Some US analysts say the market has reached the point at which selling feeds on selling. "I don't think the world 'capitulation' has been accurately used in the past few weeks, but that's what you are seeing now, when any sniff of bad news sends people running for the doors," one US stockbroker told The Washington Post on Friday.
The Dow Jones might rise today on the back of bargain hunting, but many analysts are convinced that it will remain weak over the next few weeks or months, as US investors continue to shift their money to "safer" investments. Not surprisingly, Wall Street is trying to convince investors to stay calm. "Please don't do something that emotionally feels good, but in the long term will be a mistake," Richard Grasso, chairman of the New York Stock Exchange, told NBC's Meet the Press on Sunday. So far, no one is listening.
