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Blood on the floors: Markets plunge as investors feel inflation pain

Australian investors have been hit with more brutal losses as the ASX 200 index tumbled more the 2 per cent this morning, following big losses in the US overnight.

Jun 17, 2022, updated Jun 17, 2022
The ASX has questioned Australian Mines about its announcement
(Image: ABC)

The ASX has questioned Australian Mines about its announcement (Image: ABC)

For the year to date, more than 15 per cent, or 1100 points, has been wiped off the index, putting it well into the “correction” territory and on the path to a bear market, which is defined as a 20 per cent loss from a recent peak.

Today’s losses added to the $90 billion it shed earlier this week and much of it has to do with concerns about inflation and the possibility of a recession in the US.

The downturn pushed investors into gold stocks, many of which were enjoying rises above 2 per cent. However, companies like lithium producer Allkem and automobile retailer Eagers were taking another day of big losses. Both had fallen almost 5 per cent at the market opening.

GUD Holdings suffered a 20 per cent fall after it revealed its 2022 profit would be lower than expected. Afterpay owner Block was down almost 8 per cent this morning.

“The backdrop for equities right now is about as bad as it gets,” City Index analyst Tony Sycamore wrote in his morning note.

“Central banks determination to break the back of spiralling inflation at the cost of growth likely guarantees a (US) recession during the first half of 2023.”

Montgomery Investment’s chief investment officer Roger Montgomery said the downturn provided a good opportunity and investors had a far better chance of making attractive returns.

Stocks like Zip, Pointsbet, Boral and Kogan were all down heavily on the prices at the start of the year while REA Group, Wesfarmers, ARB and Super Retail Group were down by as much as 25 per cent from prices earlier this year.

“Of course all of this is happening because inflation is surprising to the upside, scaring many investors as well as central bankers,” Montgomery said in his newsletter.

But he said there was a silver lining to the market correction and the compressed price-to-earnings ratio of some stocks.

He said compressed PEs may offer the “rational” price that investment guru Warren Buffet says is the benchmark for wise investments.

“Assuming global peace is maintained, investors have another benefit from investing after PE compression.  Inflation will eventually peak and interest rates will eventually stop being raised.  At that point PE ratios may start to expand again,” he said.

OANDA senior analyst Jeffrey Halley said the market was anticipating more aggressive interest rate hikes in the US as the Federal Reserve tries to take heat out of the economy where inflation was climbing rapidly.

But there have also been big falls in consumer confidence which is now at a level usually only seen in recessions. Business confidence has also fallen as central banks started lifting interest rates.

The downturn on the share market follows a similar one that has been occurring in the property markets in the Melbourne and Sydney. Price falls of 15 per cent are now expected there while Brisbane is expected to see a smaller and later correction.

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