Billions lost as ASX drops 10% in last month

Investors fret over global economic concerns

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Billions have been wiped off the Australian market, as the S&P / ASX 200 Index (Index:^AXJO) (ASX:XJO) loses around 10% in the past month, with global worries weighing on investors.

Concerns over weak economic data out of China, falling commodity prices, and Japan’s and the US’ stimulus plans all have investors cashing out of stock markets. Persistent fears that the US will start tapering off asset purchases and Japan’s central bank’s decision to hold its stimulus measures steady, has seen markets sold off.

In the US overnight, the Dow Jones Industrial Index suffered its third day in a row of losses, the first time it has happened this year. Japan’s Nikkei has dropped 20.8% since its May high, despite the recent stimulus measures, and slipped into bear market territory. Central bank stimulus measures are credited with much of the recent rises in global stock markets, but now investors fear that with the liquidity tap turned off, markets will struggle and have been rushing for the exits.

It’s been no different in Australia, although we’ve also seen the Australian dollar slide on the back of interest rate cuts, and falling commodity prices. The Aussie, as it is known, has dropped around 9% since early April. For international investors in Australia, that’s a double-whammy effect, with share prices dropping because of a slowdown in economic growth, and a falling dollar reducing their returns even further.

That can be seen in the falls of Commonwealth Bank (ASX:CBA), which is down 10% and Westpac Banking Corporation (ASX:WBC) which has seen its share price lose 19% since the beginning of May. Even the dividend yield stocks like Telstra Corporation (ASX:TLS) and Woolworths Limited (ASX:WES) have been sold off, losing 9.7% and 10% respectively. Prior to the recent falls, companies paying high dividends had been pushed higher and higher, as investors got out of term deposits paying low interest rates and into equities.

Foolish takeaway

The good news is that if the rout continues, there will be bargains galore on the ASX, and Foolish investors are likely licking their lips at the prospect.

On the other hand, the ASX suffered heavy falls around the same time last year, only for the index to pick itself up and rally by more than 14% from the beginning of June until the end of December 2012.

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Motley Fool writer/analyst Mike King owns shares in Telstra and Woolworths.

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