Australian Stocks Plunge Most in 2 Years Amid Global Rout, Growth Outlook

Australian stocks plunged, with oil and mining companies leading the benchmark index to its biggest drop in more than two years, as concern that the global economic recovery may stall triggered a worldwide equities rout.

BHP Billiton Ltd. (BHP), the world’s biggest mining company, slumped 4.8 percent after commodity prices tumbled. Rio Tinto Group, the second-largest miner by sales, slid 6 percent after first-half profit missed analyst estimates. Commonwealth Bank of Australia (CBA), the nation’s No. 1 lender by market value, dropped 2.7 percent as the nation’s central bank cut its forecast for economic growth this year. Qantas Airways Ltd. (QAN), Australia’s biggest airline by market value, sank 3.4 percent.

Australia’s S&P/ASX 200 Index fell 4 percent to 4,105.40 at the 4:10 p.m. close of trading in Sydney, for the biggest daily drop since January 2009 and steepest weekly retreat since November 2008. It was the lowest closing price since July 2009. Energy and material companies declined the most among the gauge’s 10 industry groups and all but seven of the index’s 200 stocks dropped. New Zealand’s NZX 50 Index (NZSE50FG) slid 3 percent to 3,276.51 in Wellington, the steepest decline since October 2008 and lowest close since Dec. 10.

“It’s a panic attack from fear that growth is dropping off a cliff,” said Prasad Patkar, who helps manage the equivalent of $1.7 billion at Sydney-based Platypus Asset Management Ltd. “There was an expectation that resolution of the U.S. debt- ceiling issue would trigger a relief rally. It looks like everyone forgot about the weakness in the underlying economy.”

Reserve Bank

Stocks also fell after the Reserve Bank of Australia in its quarterly monetary policy statement today forecast growth in 2011 will average 2 percent, down from its May 6 estimate of 3.25 percent. Gross domestic product will accelerate to 4.5 percent in 2012, stronger than its prior estimate for 4.25 percent, the RBA said.

The Standard & Poor’s 500 Index tumbled 4.8 percent in New York yesterday to an eight-month low, erasing its 2011 gain. The Stoxx Europe 600 Index dropped the most since May 2010, even as European Central Bank President Jean-Claude Trichet said policy makers will offer banks in the region additional cash to ease tensions in financial markets.

Trichet indicated that the ECB is reluctant to shelve further rate hikes and signaled that inflation risks “remain on the upside.” An employment report today is forecast by economists to show the addition of 85,000 jobs last month failed to dent the U.S.’s 9.2 percent unemployment rate, capping a week of economic reports that show the U.S. recovery is slowing.

Yearly Loss

The rout in global equities followed yesterday’s move by the Japanese government to sell yen to stem gains in the currency that threaten the nation’s economic recovery.

The S&P/ASX 200 has plunged more than 17 percent from its April 11 high this year, nearing the 20-percent-level that some investors define as a bear market.

“Everyone’s rushing for the exit at one time,” said Chris Weston, an institutional dealer at IG Markets in Melbourne. “People are saying they’re not bothered about returns any more, they just want to make sure their money’s safe. There’s really no place to hide at the moment. In this kind of market, the investment case for equities is extremely low.”

Rio Tinto slid 6 percent to A$72 after reporting first-half profit that missed analyst estimates as costs and currency gains in Australia and Canada hurt earnings.

BHP Billiton, also Australia’s largest oil producer, plunged 4.8 percent to A$38.12. Woodside Petroleum Ltd. (WPL), Australia’s second-biggest oil and gas producer, lost 5.3 percent to A$34.55. In Wellington, New Zealand Oil & Gas Ltd. (NZO), that nation’s biggest publicly traded explorer, retreated 4.4 percent to 66 New Zealand cents.

Oil, Metals

Crude oil for September delivery fell 5.8 percent to $86.63 a barrel in New York yesterday and as much as 4.3 percent today. The London Metal Exchange Index of prices for six industrial metals including copper and aluminum lost 1.9 percent yesterday.

Linc Energy Ltd. (LNC), an Australian company that converts coal into liquid fuels, tumbled 19 percent to A$2.10, while Murchison Metals Ltd. (MMX), an iron-ore exporter, dropped 13 percent to 62 Australian cents.

Australia’s key index has lost 13 percent this year, compared with drops of 4.6 percent by the S&P 500 and 12 percent by the Stoxx Europe 600 Index. Stocks in the Australian benchmark are valued at 10.9 times estimated earnings on average, compared with 12 times for the S&P 500 and 9.9 times for the Stoxx 600.

Commonwealth Bank dropped 2.7 percent to A$46.26. Westpac Banking Corp. (WBC), Australia’s second-biggest lender by market value, fell 2.5 percent to A$19.27. Qantas sank 3.4 percent to A$1.69 and rival Virgin Blue Holdings Ltd. (VBA) plunged 7.3 percent to 25.5 Australian cents.

Retails Drop

Retailers also tumbled, with David Jones Ltd. (DJS), the nation’s second-largest department store chain, sinking 5.7 percent to A$2.79 in Sydney, and Fisher & Paykel Appliances Holdings Ltd. (FPA), New Zealand’s largest refrigerator maker, sliding 5 percent to 57 New Zealand cents.

“The weakness in stocks is the product of investors coming to the conclusion that global growth is no longer getting incrementally better and may even get worse,” said Angus Gluskie, who manages about $350 million at White Funds Management in Sydney. “The moves this week reflect the mental capitulation of investors from hope to pessimism, and each day’s fall is only reinforcing the negative outlook.”

Australia’s healthy economy will help insulate the country from global financial turmoil, Treasurer Wayne Swan said today.

“Australia is not immune from events in the rest of the world, but the good news is our fundamentals are strong,” Swan said in an e-mailed statement. “We’ve got low unemployment, strong public finances with very low debt and a huge pipeline of mining investment.”

To contact the reporters on this story: Shani Raja in Sydney at sraja4@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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