Mar 17 2009
Australia’s Sharemarket Slump Close To Worst In History
AUSTRALIA’S share market slump is dangerously close to becoming the nation’s worst downturn in history. At last Tuesday’s low, the All Ordinaries index of 500 major companies was 55 per cent below its November, 2007, record high, and just short of the 59 per cent plunge of the market in the 1970s.
This fall has hit millions more investors than the ’70s slump, because share ownership has grown dramatically and superannuation became compulsory in the 1990s. Shares are the biggest component of most people’s superannuation accounts.
As for the future, stockbrokers, analysts and other market watchers are divided. One group says the world is heading for another Great Depression and our market will go much lower. The other group says we are close to the bottom and shares are the buying opportunity of a lifetime.
However for many shareholders their losses are even greater. Rio Tinto is down 67% from its 2007-08 high. Wesfarmers is down 57%, Qantas has slumped 74% and National Australia Bank has lost 60%. The biggest losers of this share market meltdown have been wealthy people and those who dared to dream of a better life. While Joe Average with little superannuation and a low wage has felt no real negative effects, Joe Wealthy has watched his investment portfolio get wiped out and, in some cases, lost his house.
Many of hose who are suffering financially are middle-class workers simply trying to build a better future. They listened to well-intentioned advice from financial advisers and friends and borrowed against their homes to invest in the sharemarket. Now their share portfolio might be worth much less than the loan they took out to buy it.
There are widely differing views about whether shares are at bargain prices today. Those who said they were bargains in March last year, when the All Ords was down only 25%, have gone quiet. There are doomsayers who say the U.S. share market will halve again and our market will follow. Others say we are now at the bottom and the only way is up.
The pain of the past 16 months has been unprecedented. Who knows what the future holds? All we can do is look at history, which has shown that share markets have always bounced back from downturns, and that fortune has favoured the brave.
