Australian Stocks Slide Into Bear Market With 3.6% Drop

(Bloomberg) -- Australian stocks crashed into a bear market just 14 trading days after hitting a record high, amid angst over the coronavirus and a historic slump in oil prices.

The S&P/ASX 200 index fell 3.6% on Wednesday, closing more than 20% below its Feb. 20 record. The benchmark tumbled after the Trump administration didn’t unveil its stimulus plans as promised. Banks contributed the most to the gauge’s move.

Over the past 14 trading days, growing concern over the economic impact of the virus has stoked extreme volatility in Australian shares, along with the global markets. Energy stocks have led declines, followed by the technology and finance sectors. A price war for oil sent energy stocks tumbling on Monday, pushing the S&P/ASX 200 to its biggest one-day drop since 2008.

In a sign of excessive selling action, Australia saw a record number of oversold stocks this week. The share of S&P/ASX 200 members with 14-day relative strength indexes below 30 -- a signal that the sell-off may have gone too far, too fast -- was at 71% on Monday.

Australian Prime Minister Scott Morrison said his government will announce an “economic response” to the widening public health emergency on Thursday, expected to consist of multi-billion dollar economic stimulus in the form of handouts to small businesses and export-cost exemptions. The government unveiled a A$2.4 billion ($1.6 billion) health package on Wednesday.

Meanwhile, the nation’s central bank has just dropped one of its strongest hints of how quantitative easing could look Down Under. The Reserve Bank of Australia may follow the Bank of Japan’s targeting of bond yields rather than making large purchases each month to keep rates low, according to comments by Deputy Governor Guy Debelle today.

Longer-dated Australian bonds are outperforming interest rate swaps in recent weeks as investors price in some form of potential unconventional policy.

To contact the reporter on this story: Jackie Edwards in Sydney at jedwards160@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Naoto Hosoda

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