Industry calls for calm over market correction

Peter Costello

Industry experts are calling for calm following the global stock market slide resulting from a near 10 per cent decline in the Chinese market earlier this week.

Global markets went into freefall on February 27 after the Chinese market declined 9.2 per cent after the government announced it would crack down on illegal stock market investments.

Russell Investment Group’s investment strategist, Andrew Pease said the news triggered a global share market decline with the Dow and S&P dropping 3.5 per cent, effectively wiping out the US market gains for 2007.

“The Chinese crackdown on illegal stock market flows does not change the largely positive outlook for the Chinese economy. It should not be a catalyst for an extended global share market correction,” Pease said.

“This is in contrast to last May, when genuine concerns about rising global inflation and interest rates triggered a 10 per cent correction across global equity markets.”

Federal Treasurer Peter Costello downplayed the market decline, claiming it simply illustrates “the interconnectedness of global financial markets”.

He said it also provides a lesson for investors and governments.

“Well, I think that the lesson that I would draw out of this is that the stock market is not a one-way bet, there is no such thing as a one-way bet in terms of investment.

“That is the first thing I would draw out of it. The second is it is an illustration of why we have to concentrate on getting fundamentals right in Australia. If an event in China can trigger a 3 per cent fall within 24 hours in the Australian stock market, just imagine what bigger external shocks could do to our economy. That is why you have got to make sure your economy is strong,” he said.

The S&P/ASX 300 opened down around 3.5 per cent, but has risen to around 2.4 per cent down. Diversified resources have been hit hard with Rio Tinto down 4.5 per cent.