The Australian stock market has plummeted more than 5% this September, reversing any gains made since the beginning of the calendar year. And the bad news is, there could be even more pain to come…
Australia's high interest rates (relative to other countries) have for many years acted as a magnet for foreign investors who flocked towards the high yields. Now that the US economy is improving and the Federal Reserve looking more likely to raise interest rates, we're seeing those investors withdraw their funds from our overpriced blue chips and instead move them to more traditional safe havens.
That's one of the big reasons we've experienced such heavy selling in some of our most popular stocks recently. Woolworths Limited (ASX: WOW) for instance has fallen 4.2% this month, while Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) have also dragged on the market with their respective 6.8% and 9.2% declines.
The mining sector has by no means been a saving grace, either. BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) have both endured heavy falls with the iron ore price plummeting to fresh five-year lows. In fact, it sank to just US$78.60 a tonne overnight, reflecting a 42% decline since the beginning of the year.
Add in concerns over the inflated local property market or worries over future growth in China and it seems like you've got yourself a lethal concoction.
As it stands, I wouldn't be surprised if the market pulled back a little more. After all, I think some of our blue chip stocks are still trading at excessive prices while we have been overdue a correction for some time now.
Not that I'm suggesting this will be a correction, or anything of the sort. For all I know the market could rebound strongly in October and make us all happy again.
What I DO know however, is that this is all excellent news for value investors, like myself. While I hate to watch my portfolio stumble or drop in value, it had become increasingly difficult to find high-quality stocks trading at reasonable prices. As such, the market's recent pullback is like music to my ears.
