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Economists discuss how stock market might be affected by falls in the US.



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This transcript has been prepared by a source external to the Department of the Parliamentary Library.

 

It may not have been checked against the broadcast or in any other way. Freedom from error, omissions or misunderstandings cannot be guaranteed.

 

For the purposes of quoting verbatim from a transcript, it is advisable to verify the transcript against the broadcast.

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PM

 

Monday 22 July 2002

 

Economists discuss how stock market might be affected by falls in the US.

 

 

COMPERE: Friday's nightmare on Wall Street did not bring on the Black Mond ay that some expected on the Australian market. 

 

Investors here refused to accept the sentiment of doom and gloom in New York. 

 

But many are still nervous about the effects if the US stockmarket plunges again overnight, especially in the wake of that WorldCom announcement. 

 

Our Finance Correspondent, Stephen Long, reports. 

 

STEPHEN LONG: Monday, bloody Monday it wasn't.  

 

After a weekend when even the tabloids were treating Friday's rort on Wall Street as front-page news, local investors were waiting anxiously for the bears to rip into the Australian market.  

 

And they did initially. It was sell, sell, sell in the morning, as investors wiped two percent, or $16 billion off the value of stocks.  

 

But the Australian sharemarket clawed its way back in the afternoon. 

 

At the close of trade, the All Ordinaries was down just three-quarters of a percent.  

 

Many economists were expecting a fall four times worse than that. So why the resilience? 

 

John Howard says it's because we have a sound economy that never succumbed to the stockmarket bubble. 

 

JOHN HOWARD: It's important to see what's happening on Australian markets in the context of the markets having not zoomed up quite as much as they did in other parts of the world, particularly the United States. 

 

But there's a strength and a resilience and a stability about the Australian economy, which is very important. 

 

STEPHEN LONG: Most market economists agree with the Prime Minister's sentiment. 

 

Michael Blythe, Chief Economist at the Commonwealth Bank. 

 

MICHAEL BLYTHE: I suspect we've seen such large falls that some Australian companies look like very good buys and a bit of bargain hunting certainly helped, but underneath all of that is the fact that the Australian economic fundamentals are that much better. 

 

We've got an economy that's strongly growing at the moment. A lot of the growth is flowing through to business bottom lines, which is obviously good for profits. 

 

STEPHEN LONG: According to ANZ Chief Economist, Saul Eslake, it was no surprise that the Australian stockmarket didn't succumb to the hype. 

 

SAUL ESLAKE: There was probably a sense among investors of waiting and seeing how Wall Street opened tonight, whether there was any follow-up selling after the four and a half percent decline that occurred on Friday night.  

 

The second small factor was that Japan performed reasonably well today, being down only 1 per cent and that gave the Australian market a certain amount of confidence.  

 

The third most important reason, however, is that the relatively small fall today is consistent with the pattern that we've seen since the selling on Wall Street really began this year at the end of March, that is of the Australian market falling, but by a lot less than the US or European markets, and for that matter most other Asian markets have done. 

 

STEPHEN LONG: But if the bears savaged the US sharemarket again today, Australia may not prove so resilient. 

 

Michael Blythe again. 

 

MICHAEL BLYTHE: I think we keep getting a succession of negatives in the US that we may see something more severe in Australia. We won't necessarily get a lot of that retracement that we've seen on our markets today, we may end up with a bigger fall. 

 

STEPHEN LONG: The Australian Stock Exchange hosted a seminar in Sydney for investors today, its topic: why you should buy equities and not property. How many investors will agree with that proposition in today's volatile climate on the sharemarket is open to question.  

 

Clearance rates at home auctions were back up again at the weekend, and dumps in the better suburbs of Sydney were fetching more than a million dollars.  

 

And analysts concede that, for the moment at least, many people are getting better returns from savings in a bank than from their shares. 

 

COMPERE: Stephen Long.