Market wipeout: 2013 gains mostly erased

ASX drops 11% since April, erasing almost all gains since the start of the year

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Investors are hurting, with the Australian stock market down for the fourth consecutive day. With the S&P / ASX 200 Index (Index:^AXJO) (ASX:XJO) sliding 1.3% in trading today, almost all of the gains from 2013 have been erased.

At the start of this year, the index was trading at 4,648.9 – it’s currently at 4.674.3. From a 52 week high of 5,249.6, set in early May, the index has now slumped more than 10%. The falling Australian dollar, concerns of weak economic growth in China and the likelihood of the US tapering off its quantitative easing have all hit our market.

The Aussie dollar has dropped more than 11% since mid-April against the greenback, as the Reserve Bank of Australia cut interest rates, and the US dollar strengthened against most currencies. The US Federal Reserve announced last week that it was planning to cut back its bond buying program (quantitative easing), and could cease totally by mid-2014.

Equity markets have reacted like a drug addict about to be deprived of its favourite drug, and thrown what has been referred to as a ‘taper tantrum’. The massive stimulus by the US was seen as pushing up the share prices of US companies, but take that away suddenly and investors have lost all confidence.

In China, economic growth that was expected to be over 7% now appears to be lower, with no indications that the Chinese government will add further stimulus to maintain expected rates of growth. Add in falling commodity prices and investors appear to be selling off anything they can get their hands on.

The ASX in particular has been hard hit, with international investors selling out of our large cap stocks, especially the big banks ANZ Bank (ASX:ANZ), Commonwealth Bank (ASX:CBA), Westpac Banking Corporation (ASX:WBC) and National Australia Bank (ASX:NAB). All four have run hard this year, but with the Australian dollar falling and equity investors nervous, it seems they are taking their profits and running.

Foolish takeaway

Analysts have suggested that the days of the Australian dollar keeping parity with the US dollar are over, and many expect it to slide further. As we have suggested previously, investors don’t need to panic and patience is the key during volatile times like these.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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