More than $120 billion has been wiped off the share market in May, with shareholders braced for more turbulence as Europe tries to sort out its debt crisis.
Australian shares dropped to their lowest level for six months on Friday in response to falls on Europe’s main stock markets and the euro hitting a four-month low against the US dollar.
About $35 billion was wiped off the value of local shares as the market tumbled by 2.6 per cent.
Since hitting its peak for the year on May 2, the market has shed about $121 billion – enough to buy 300 or so A380 super jumbo jets.
Brokers predict the falls will continue at least until the next round of elections are held in Greece on June 17 and a more definite picture emerges about whether the debt-laden country will remain in the euro zone.
“I think we’re going to be subdued till then with more negative than positive,” Lonsec strategist Michael Heffernan said.
IG Markets analyst Stan Shamu said the market was already pricing in the worst case scenario in Europe and it was difficult to predict what would happen in coming weeks and months.
“People are now scared that we will get a lot of contagion from Greece and Spain and the situation will end very badly,” he said.
However, while brokers agree that a quick resolution about Greece’s future will help reassure global markets, they disagree about whether the outcome will have much of an effect.
Mr Heffernan believes if Greece leaves the euro zone and returns to the drachma it would not have much of an impact on global markets.
“That means there will probably be a depreciation in the currency, which means a lot of people who have lent money are going to suffer, and that should be good for their exports in the long term,” he said.
But Australian Stock Report head of research Geoff Saffer said it all depends on what measures the European Union takes to ensure the economic futures of the remaining countries.
He said once global markets stabilise and interest rates continue to fall then more people may invest in the local market rather than term deposits.
Worries about China’s economic slowdown will also continue to have an impact on the market.
“Certainly until there is a clear resolution in Europe we don’t expect significant buying to come back in the market,” Mr Saffer said.
“We expect the Chinese story to continue as an overhang to the Australian market for some time.
“Until China implements and wide ranging stimulus measures we expect fears about a slowdown to continue. The short-term outlook is probably still bearish.”
Most analysts and brokers believed the US market was not going to be much of an issue for Australia, but RBS Morgan’s Brisbane broker Craig Walker said the US presidential elections in November may cause problems locally.
“That could cause uncertainty in the US economy,” he said.