The stock market today had its steepest plunge since the Global Financial Crisis. Yeah the US might have done a last minute deal to raise the debt ceiling but there are increasing fears that it may slip into a second recession. With the dramas going on in Greece and Ireland along with Italy and Spain, it’s no surprise investors are thinking it’s probably the time to cut their losses.
Friday 5th August, 2011 saw the ASX drop 183 points, translating to over A$100b wiped this week. But what seems like dreadful news for shares in the short term (let’s not mention our super funds now) a fantastic buying opportunity has opened itself up for investors, who are relatively more cashed up that during the GFC.
Bank stocks are now looking good offering better yields than that obtained in their term deposit accounts. BHP is the cheapest its been all year. Seven West Media (SWM) is pretty much at a 16 year low! Everything else is pretty close to where it was at the GFC, so if you missed out then, it’s a good time to get in… soon. Better wait to see what happens on the US markets tonight with the release of employment data.
If you’ve pulled your wig off this week, glue it back on.
Why Australia is still better positioned to handle another crisis
While the Rudd/Gillard governments have well and truly wiped off all remnants of the healthy surplus maintained by the Howard Government, our country still has a few aces up its sleeve.
Firstly, we’re probably more directly affected by the happenings in China rather than those of the US and Europe. The Chinese economy is still growing, even if it is at a lower rate.
Secondly, while our housing market is kaput and our retail sector is suffering, the RBA still has the ability to reduce interest rates to combat a recession. Our friends do not have that option. In fact if the US market gets another beating tonight, we may even get a special ‘crisis’ rate cut.
Thirdly, our banks in particular have been protecting themselves ever since the GFC and given the yields on offer in the market today even if they dropped another 25% it’d still be a good outcome. If the RBA cuts rates, then they’ll also get a boost.
So while I’m naturally pissed off that the current government seems to have done all it can to decrease domestic confidence, I don’t think we should be panicking like we all were last time around. Still, I’d definitely like to see how Mr Swan delivers on getting us back in the black by 2012-13.
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