Australian Stocks Give Up Their Gains for 2017 as Banks Bleed

(Bloomberg) -- On a gloomy day for stock investors, Australian money managers had reason to be even more glum than most. 

The equity benchmark Down Under dropped below the point at which it started 2017 after North Korea fired a missile over Japan and the fallout from scandals surrounding Australia’s biggest bank weighed on major financial stocks.

The S&P/ASX 200 index fell as much as 1.1 percent as the rocket launch by Kim Jong Un’s regime raised geopolitical tensions and spurred a slump in stocks around the Asia-Pacific region. 

Sydney-based Commonwealth Bank of Australia was the biggest drag on the local share index, with the stock falling as much as 1.8 percent following news Monday that it will face an additional regulatory inquiry in the wake of alleged money-laundering breaches. The nation’s other major lenders also lost ground, while gold producers such as Newcrest Mining Ltd. and Resolute Mining Ltd. benefited from a haven bid for precious metals.

The Australian stocks gauge has retreated from the highs it reached in May, when a rally toward levels last seen before the global financial crisis was undercut by a surprise tax on the nation’s biggest banks. Corporate earnings announcements this month by many of the country’s largest companies have failed to propel the market higher even as rebounding commodity prices enabled BHP Billiton Ltd. and Rio Tinto Group to post better profits and boost dividends. The S&P ASX 200 is now down 0.1 percent for the year.

“It’s really a risk-off play at the moment, classic selloff in financials and buying of gold,” said Karl Goody, a Sydney-based private wealth adviser at Shaw and Partners.

Australia’s four largest banks account for more than 20 percent of the local benchmark. CBA is the worst performer among them, having fallen 8.3 percent since Dec. 31, although Australia & New Zealand Banking Group Ltd., National Australia Bank Ltd. and Westpac Banking Corp. are all down too. The second probe into CBA, announced Monday, is a credit negative, Moody’s Investors Service said, while Credit Suisse Group AG cut its share-price target for the lender by 10 percent.

To be sure, equities are still performing better than Australian sovereign debt. Including dividends, the benchmark stock index has delivered a total gross return of 3.8 percent this year compared with a gain of 2.6 percent on a Bloomberg AusBond Index of sovereign bonds. A gauge of corporate credit has climbed 3.7 percent.

The S&P/ASX 200 fell below its 200-day moving average on Monday and the measure is this year trailing other major equity markets in Asia from Singapore to Tokyo and Hong Kong.

To contact the reporters on this story: Vivek Shankar in Sydney at vshankar3@bloomberg.net, Matthew Burgess in Sydney at mburgess46@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Benjamin Purvis