Australian stock market plunge hits global markets: Mining stocks bear the brunt

The mayhem in Australia’s stock market on Tuesday saw its benchmark index pulled down to a two-year low on the back of collapsing commodity prices and its echo being heard in all global markets.

The ASX 200’s hit the lowest since July 2013 and wiped out AU$60 billion in value when the market slipped below the psychological threshold of 5000 points. The crash left many global mining companies in soup.

The benchmark ASX 200 Index plunged 3.8 percent to 4918.4 over the warning that the shares of world’s biggest mining companies -- Glencore and Anglo American, would lose value and see a replay of a Lehman Brothers’ like collapse. The benchmark index also seemed heading for its worst quarterly performance in four years, ABC News reported.

Crash drivers

The crash was accentuated by the concerns over falling demand in China for coal, iron ore, copper and aluminium as profits of many major Chinese companies dropped. On Monday, Glencore shares slipped 30 percent in London.

IG markets analyst Angus Nicholson reasoned that the Australian market had been hit by a global stock rout over concerns of an impending mining sector collapse.

“Mining companies listed on the Australian stock market have lost half their value over the past year as commodity prices tumbled,” Nicholson pointed out. Nicholson said investor nervousness over the health of the Chinese economy will continue as key data on manufacturing is expected shortly.

Glencore recovery

Meanwhile, a small silver lining amidst the tumble was mining giant Glencore’s recovery after its shares fell a third on Monday over the fears of its debt levels. However, it managed to recover partially during trading in London overnight, and jumped to 17 percent.

Glencore in its reaction said it had taken proactive steps to position the company to withstand current commodity market conditions.

"Our business remains operationally and financially robust — we have positive cash flow, good liquidity and absolutely no solvency issues," Glencore said.

US markets struggle

Meanwhile, Wall Street ended on a mixed note. The volatile session, saw two main indices advancing slightly and the technology sector took the hit. The Dow Jones Index rose 0.3 per cent to 16,049. The S&P 500 put on four points to 1,885. The Nasdaq lost 27 points to touch 4,517.

In Europe, all markets fell. But in London, the mining stocks made a comeback although they were not strong enough to see a rise on the FTSE 100 and lost 50 points to 5,909.

Meanwhile, Federal Treasurer Scott Morrison exuded confidence that the economy is performing "incredibly well", despite the plunge in the Australian stock market.

"These are obviously difficult days and there's lots of headwinds we already know that," he told Sky News.

Commodity rout

In an analysis, the Guardian noted that the slide in shares in Asia and London are attributed to the fear of investors over the Chinese slowdown, the U.S. rate hike and slumping prices for key commodities.

It said the IMF’s warning of a crisis has been timely as investors have been gravitating to emerging markets in an indiscriminate fashion, seeking higher returns than in the west.

The IMF has warned that a possible financial crisis may hit emerging markets as central banks start raising interest rates. The U.S. is expected to hike the rates later in 2015. Fearing many corporate failures in its aftermath, the IMF has cautioned all to brace up as the western countries begin the process of returning to a normal setting as it existed before GFC.

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