Investors around the globe are on edge amid more volatility in financial markets as Wall Street attempts to wean itself off stimulus and fears intensify about China's banking system, sending Australian shares sharply lower to the point of wiping out all the gains this year.
After a monumental week marked by US Fed chairman Ben Bernanke's comments that he may soon start tapering bond purchases after years of pump-priming, markets steadied across Asia, only recovering amid reports that China had embarked on its own stimulus effort.
The central bank reportedly had stoked its banking system to alleviate concerns of credit drying up and moved to squash rumours - typically stoked as the short sellers look to profit from gloom - that a big commercial lender in China was in trouble.
On the Australian market yesterday, and despite fears of carnage after a more than 350-point plunge in Wall Street's Dow Jones Industrial Average and almost 7 per cent slide in the gold price, the S&P/ASX200 yesterday ended down just 19.6 points or 0.41 per cent at 4739.
The fall led to a loss of 1.1 per cent for the week, the worst showing in 21 months, and put the market near to wiping out the year's gains after starting 2013 at 4649. The broader All Ordinaries gave up 20 points to 4724 while Japanese stocks jumped more than 1.5 per cent.
"The markets are just very much on edge," said Johan Carlberg, a principal at Alphinity Investment Management. "The challenge is the transition from the market being driven largely by that
liquidity to being driven by economic growth and earnings growth. There will be some disruptions along the way, but if the economic growth does come through it should support equity markets."
After a US3c fall on Thursday, the dollar sank to a low of US91.63c before rallying yesterday to about US92.44c last night.
The volatile week was sparked by Mr Bernanke's stronger-than-expected signal the Fed might taper its $US85bn-a-month of bond purchases this year if the powerful US economy continues to experience a resurgence and creates jobs and inflation.
Stephen Roberts, head of Citigroup's Australian operations, said while volatility was inevitable as China moved to sustainable growth, Mr Bernanke's moves signalled better days ahead in the long term as the US property market picked up and the shale-gas boom transformed the economy.
"Readjustment is taking place, but the underlying fundamentals are still there and that is the case in China and in the US," he said.
"Bernanke is obviously looking at the economy, saying we don't really need this any more, we don't need this drug, this injection to keep stimulating this because it's driving itself now. I think that's a very strong signal."
