Is it time to press the panic button on ASX?

Team Veye | 17-Sep-2018 panic button on ASX

US-China trade worries, falling world oil prices and a new round of mortgage rate hikes by local banks have triggered ASX to drop to their lowest since June. Analysts believe that the drop was likely due to investors worrying that a retail bank rate hike may persuade the Reserve Bank of Australia to raise the official interest rates. And, this worry is contrary to the fact that if the banks are raising mortgage rates, then the RBA certainly doesn't need to. Australia has been keeping the official rates on hold which is a currency negative move as many other countries around the world have increased official rates. The big four banks' shares rose in the week before last  following Westpac's rate hike and on 6th Sep, ANZ & CBA's moves had a minor impact. 

As per some available estimates, these trade concerns have wiped more than $50 billion worth of market capitalisation from Australian stocks during the last 10 days. With US threatening to impose more tariffs on China, the investors are certainly trading cautiously. 

On the other hand Oil prices fell as emerging market woes weighed on sentiment and a deadline neared for a potential new round of US tariffs on another $US200 billion of Chinese goods. And as seen historically, Gold being a safe-haven strengthened its position. 

To add to this is the already prevalent Political uncertainty that we covered last week with the former Australian Prime Minister Malcolm Turnbull resigning from the Parliament on 31st Aug’18, Friday, triggering a by-election that could bring down the unpopular conservative government. Scott Morrison ousting Malcom Turnbull to become Australia’s new Prime Minister had given traders some inspiration, but the betting markets still have Labor winning the election fairly comfortably and the risk remains that we get gridlock in the Senate. Some traders remain concerned that Labor policies might wind back negative gearing and capital gains tax discounts, plus potential shifts in industrial relations and wage policies, may be a negative for some business sectors. Analysts believe that this could very well mean removal of franking credits on Dividends which will surely have a huge impact on the Australian Stock Exchange and how people invest.

If you go by history, the stock markets have witnessed a crash every 10 years and the last time it happened was in 2008, so does that mean that it’s time to press the panic button? Of course not, but it’s always wise to be cautious then repent later. So, you just need to keep an eye on how all these events unfold in the shorter run, be aware of any serious implications in the longer run and play your game wisely.


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