Markets: Greece, China Fears Drive Markets Lower

European and Asian stock markets fell sharply Monday on rising concerns of a Greek sovereign default, and additional worries over China's financial health.

The news saw markets in Asia down by 2 to 4 per cent in gloomy trading yesterday that continued into Europe and the US.

European markets were off by 1 to more than 2 per cent in early trading Monday night. US futures were in the red as well.

Chinese markets are on holiday all this week, so the pressure from the China bears is being felt in Hong Kong.

In the late morning, the Hang Seng index was down 4.5 per cent to 16,736.97, extending its 2.3 per cent drop Friday, while the Hang Seng China Enterprises Index - which tracks Hong Kong-listed mainland Chinese firms - slumped 5.8 per cent, thanks in part to the closure of the mainland markets this week for the National Day holidays.

Other Asian markets fared only a little better, with Japan's Nikkei Stock Average losing 1.9 per cent, and Australia's ASX 200 lost 2.7 per cent. South Korean markets were also closed for holiday.

The ASX/200 plunged 111.6 points to 3897, while the All Ordinaries index lost 109.4 points, or 2.7%, to 3960.7.

The fall wiped another $32 billion off the value of the Australian market, extending September's near 7 per cent fall to close to 10% and the fall in value to nearly $120 billion.

The Australian dollar fell further, losing more ground to fall as low as 95.92 U.S. cents, a 10-month low.

That was after it fell 9 per cent in September and 13% from its low in late July.

It last traded at 96.20 US cents.

Spot gold added $US1.94 an ounce to $US1624.89 in early Asian trade.

Gold rose around 8 per cent in the September quarter, despite losing 11 per cent in the month of September.

Much of the selling in Chinese shares is in and around finance and property groups with rising fears about losses and possible defaults among developers.

Hong Kong led the slump, with the main Hang Seng Index plunging under the 17,000 level within minutes of the open, an area not visited since mid-2009.

The sell-off followed those reports that Greece's Finance Ministry had approved a new budget for parliamentary review that falls short of austerity targets (See next story).

Brokers in Hong Kong say China could soon see a sharp rise in debt defaults, with worries about a wave of bad debts, especially in property, recently highlighted by Credit Suisse, among others.

Some Chinese property firms nosedived on rising concerns about the health of that sector.

Marketwatch reported that on a note CLSA Asia-Pacific Markets analyst Christopher Wood cited a Financial Times report that Chinese officials appeared ready to let many real-estate developers there fail in an economic "survival of the fittest."

"Given the currently extremely nervous nature of investor sentiment globally, such an attitude in Beijing increases the probability of a real hard-landing scare in China, which will likely be followed at some point by a dramatic policy U-turn in Beijing," said Wood.

CLSA reduced the weighting for Chinese shares to a neutral rating, "given the likelihood that credit concerns at the Chinese banks will continue to surge," Wood said.

And Macau casino shares were pounded for a second day on these new fears about the Chinese economy and bad debts.

Shares of the territory's largest casino by revenue, SJM Holdings lost 20%, those of Sands China, fell 14.3%, while Melco International Development Ltd (part-owned by James Packer's Crown), slumped by more than 14%, as did Wynn Macau Ltd.

We all know the third quarter and especially September were rotten times for investors.

The MSCI All Country World Index slumped 18 per cent for the quarter, with a drop of 2.3 per cent on Friday. It lost roughly $US5.29 trillion in market capitalization in the quarter, according to Thomson Reuters.

But strange as it might seem, the Australian stockmarket wasn't the basket case some commentators and media writers led us to believe.

Last week the Australian market, along with many others round the world, steadied and either finished higher or with small losses, especially compared with earlier in September and in August.

For example the Australian market was up 2.7 per cent last week, but the U.S. market was up around 1.3 per cent. Europe was also higher as well.

But Friday saw a nasty sell-off in Europe and the U.S.

And over the September quarter our market did well, relative to offshore markets, especially those in Europe and especially many commodities such as gold, copper and silver.

For September the ASX 200 lost 6.8% - a nasty sixth monthly decline in a row, but for the quarter, it was off 13.1% which was the worst quarterly return since the final three months of 2008 - the depths of the global financial crisis.

The Australian dollar outperformed the market, losing nearly 10% in the month. It finished at 96.65c; a year ago it was 96.70c.

(The dollar is down 13% from its record-high $US1.1081 reached on July 27, which is actually 'good' news for quite a few companies and industries, and for our export revenues if this continues).

Bloomberg said the NZ dollar lost 8.2%.

Other growth or commodity currencies such as Brazil's real and the South African rand lost more than 15% in the quarter, so the Australian dollar held up well against its currency peers.

The euro lost 7.7% against the US dollar and lost 11% against the yen. Bloomberg said the US dollar lost 4.3% against the yen.

The euro closed September at $US1.3388, roughly where it was a year ago!

With much of the market volatility due to European fears about the eurozone and the euro, it's no wonder that sharemarkets on the continent fell sharply, with the Stoxx Europe 600 index posting a quarterly fall of more than 17.1%.

But it did have its best week for 14 months, rising 4.6%.

In the last three months Italy's main stock exchange has lost 27% of its value, while Frankfurt's DAX and Paris' CAC-40 both ended the quarter down by more than 25% because of fears about the impact of a default by Greece and problems in Italy and banks in Germany and France.

In Madrid losses were 'limited' to 18% and on London's FTSE to 13.7%.

The last time the Footsie fell more sharply was the third quarter of 2002, when the UK's blue-chips were down 20% in the dotcom crash of that year.

In New York, the Dow lost 6% for September and 12.1% for the quarter.

The S&P 500 dropped 14.3% in the third quarter (and only 0.4% for last week), losing about $US1.7 trillion in market capitalization.

In Asia, MSCI Asia Pacific Index lost 14% for the quarter.

The Hong Seng Index plummeted 21.5% in the quarter, but China's main market in Shanghai fell to a two and a half year low last week and a the third quarter loss of 14%.

The Nikkei lost 11.4% in the quarter.

But commodities were hit hard and while gold did OK, it was because of strong gains early in the quarter.

On the month, gold has lost 11%, but rose 8% on the quarter.

September's stumble was gold's largest monthly fall since October 2008.

Silver was a big loser: Comex December silver lost 28% in September, and 14% in the quarter.

But copper took a hiding, losing 24% in the month (on those odd fears about the Chinese economy) and 25.8% for the quarter. So September was a bloodbath for copper investors.

Nymex oil in the US capped the largest quarterly drop since the 2008 financial crisis by hitting a one year low on Friday to be down 17% for the quarter.

Oil lost 11% in September in New York.

In London, Brent futures dropped 11% for September and 8.6% for the quarter.

The Standard & Poor's GSCI index of 24 raw commodities fell 2.6% on Friday to end the month down 12% and 11% for the quarter. Overall for commodities it was the worst month since November 2008.

This widely watched index is now down 5.6% for the year so far, led by big falls in cotton, nickel and copper.

The GSCI has slumped 22% since reaching a 32-month high on April 11.

Similarly, the Reuters-Jefferies CRB index, another commodities measure lost 9% in September and 25% from the start of July.

Corn, wheat and soybean fell sharply last Friday in Chicago because of better than expected stocks figures from the latest US Department of Agriculture report.

Corn lost 23% in September, as did wheat. Soybeans fell 19% in the month.

Bloomberg said US bonds with a maturity of 10 years or more returned 22% in the quarter.

Market yields on Australian 10 year bonds fell 1% in the quarter, from 5.28% to 4.27% late last week. They hit a low of 4.02% last week, but then rose in yield as confidence recovered.