The S&P/ASX 200 (Index: ^AJXO) (ASX: XJO) is expected to trade much lower following poor leads from international markets overnight.
Here's a recap:
- Dow Jones (USA): down 2.32%
- NASDAQ (USA): down 3.03%
- FTSE 100 (UK): down 1.96%
- DAX (Germany): down 2.29%
- EURO STOXX 50 (Europe): down 1.74%
- Shanghai Composite (China): down 6.93%
Fears of a rough landing in China again spooked global markets, after the Chinese government moved to halt trading on their share market and devalued the currency. In the US, Chinese concerns took the major indices to their lowest levels in around three months.
Share prices of major commodities producers, which have rallied on two decades of unprecedented economic and infrastructure growth in Asia, are now in the firing line. In Europe, FTSE-listed shares of Rio Tinto Limited (ASX: RIO) and BHP Billiton Limited (ASX: BHP) again fell hard – down another 3.93% and 5.03%, respectively.
Closer to home, the Sydney Futures Exchange is tipping the S&P/ASX 200 will drop below 5,000 points – more than 1.2% lower. But don't panic, we were at 5,000 points just one month ago!
The currency devaluations by China have the biggest implications for countries like Australia and Canada – commodity producing states. Overnight, the Australian dollar fell well-below 70 US cents but recovered to trade 0.96% lower at the time of writing. However, the Australian Dollar (AUDEUR) fell more than 2.3% against the Euro.
The lower Australian dollar may be perceived as a bad thing, but it's actually a positive for the Australian economy. Investors looking to offset the Australian dollar weakness can buy US-dollar Exchange Traded Funds (ETFs) to track global markets, or identify local companies with global exposure. Westfield Corp Ltd (ASX: WFD), QBE Insurance Group Ltd (ASX: QBE) and Computershare Limited (ASX: CPU) conduct a majority of their business internationally, and will be net beneficiaries of the lower dollar.
Oil producers like Woodside Petroleum Limited (ASX: WPL) and Santos Ltd (ASX: STO), usually benefit from Australian dollar weakness. Unfortunately, however, steep falls in commodity prices are expected to hurt profits and outweigh the benefit of currency tailwinds.
In summary, although today will likely be a tough day for the market, investors are reminded that the share market is a long-term game. Indeed, I know what I'll be doing when the market falls (Hint: It's not selling).
