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Market Insights: Global Reactions to China's 9% Fall & Australian Dollar Strength in March 2007

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In late February 2007, the Shanghai Composite Index experienced a dramatic 9% drop, impacting global markets. Despite this shock, markets are now approaching previous peaks, some even exceeding them. The US market recorded its best week in four years by late March. Concurrently, the Australian dollar has strengthened significantly against the US dollar, Euro, and Yen, raising concerns about the profitability of local companies competing in global markets. This report provides insights into these pivotal economic events and their implications.

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Market Insights: Global Reactions to China's 9% Fall & Australian Dollar Strength in March 2007

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Presentation Transcript

  1. Markets chartpack April 2007

  2. What correction?The China fall… • The Shanghai composite index fell almost 9% on Tuesday 27th Feb 2007 and weighed on sharemarkets around the globe. • Markets are now almost back to their earlier peaks, with some (including China) even higher. • In late March, the US market had its best week in four years. “…in my opinion, share markets around the world had become over-valued, or at least fully valued. Overvalued markets can remain that way for a long time, but they are vulnerable to shocks, and the 9% fall in the China market was just such a shock.” Source: BT Financial Group Chief Economist Chris Caton

  3. Australian dollar strengthens • Our local currency has hit decade highs against the US dollar recently. During March it rose: • 2.53% against the US dollar • 1.74% against the Euro • 2.17% against the Yen

  4. Australian dollar strengthens (cont.) • In recent years, when the $A has risen, it is usually because the US dollar has fallen. • Forecasts that the $A is headed for 85 US cents really embody a view that the US dollar will fall by a further 5%. I think this unlikely. • A strong currency affects the profitability of Australian companies that compete with imports, that export, or that earn profits offshore. Source: BT Financial Group Chief Economist Chris Caton

  5. Currency markets – $A per $US Source: BT Financial Group. Figures as at 31 March 2007.

  6. Currency markets – $A per Euro Source: BT Financial Group. Figures as at 31 March 2007.

  7. Currency markets – $A per Yen Source: BT Financial Group. Figures as at 31 March 2007.

  8. Global indices Source: BT Financial Group. Figures as at 31 March 2007.

  9. Asset class performance Source: S&P/ASX 300 Acc Index, MSCI World ex Aust (net divs) Index in $A, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in AUD

  10. Long-term asset class performance Source: S&P/ASX 300 Acc Index, MSCI World ex Aust (net divs) Index in $A, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in AUD

  11. Asset class performance Source: S&P/ASX 300 Acc Index, MSCI World ex Aust (net divs) Index in $A, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in AUD Best performing asset class highlighted in red

  12. Asset class performance Source: S&P/ASX 300 Acc Index, MSCI World ex Aust (net divs) Index in $A, S&P/ASX 300 Property Index, UBS Composite 0+ years index, Citigroup World Government Bond, Unhedged in AUD

  13. Oil prices (US$ per barrel) Source: BT Financial Group. West Texas Intermediate as at 31 March 2007.

  14. Official world interest rates Source: BT Financial Group.

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