Graph shows real crisis in virus-induced stock market crash
There's no hyperbole too great to describe the predicament stock markets have tumbled into.
Coronavirus-induced panic selling shedded $232 billion from Australian shares this week, only narrowly avoiding the worst fall in its history thanks to a late surge on Friday.
More than 7 per cent daily falls have been inflicted on the market twice this week, setting fresh post-Global Financial Crisis records.
The index's all-time record high of 7289.7 set on February 20 has been violently chipped at over the last few weeks, losing $529 billion in value.
And the carnage wasn't limited to Australia. An emergency trigger halted trading on the Dow Jones twice this week after similar 7 per cent plunges - a mechanism designed to prevent panic selling not needed since 1997.
On Friday night Australian time, Wall Street's S&P 500 index had dropped 27 per cent in less than 20 days. During the GFC, the same fall took 286 days.
But one particular index plummeting in value reveals the true extent of the looming market crash.
Gold is commonly viewed by investors as a defensive stock; when a dramatic sell-off takes place and flashing red numbers indicates widespread falls, buyers retreat to the companies that mine the precious metal.
This week, however, its value was sucked into the vortex along with every other sector, tumbling in value and revealing the alarming trend of investors withdrawing from the stock market altogether.
"Gold is seen as a safe haven but when you see a real crisis you get liquidation, and that means assets all move together," Burman Invest chief investment officer Julia Lee told news.com.au.
"That's something we saw during the Global Financial Crisis because when people have to liquidate assets they liquidate whatever they can get their hands on."
Pepperstone head of research Chris Weston said gold stocks falling in line with the wider market shows "everything is disjointed".
"Up until about three or four days ago it was basically seen as a proxy of the bond market - inflation adjusted or what we call real yield - so if real yield was going down, gold was going up.
"It was seen as the counter of that and that's now breaking down."
The late arvo rebound makes the graph look like this pic.twitter.com/50oAIVKMYq— Greg Jericho (@GrogsGamut) March 13, 2020
WHERE SHOULD AUSSIES INVEST?
Mr Weston said investors who have erratically exited the market and bought-up positions in other asset classes such as cash or property risk missing out on an eventual, but inevitable, share price recovery.
"There's so much disdain and so much panic being expressed in selling (at the moment)," he said.
"If we do get a snapback the market's not going to rally 1 per cent, it's going to rally 10 per cent.
"That's the problem with being in cash now, if you're going to do it you're very late to the party, that's how intense this sell-off has been.
"Blink and you miss it, blink and you're down 20 per cent."
WHAT ABOUT PROPERTY?
House prices traditionally boom after stock market crashes - following the 1987 crisis, property values jumped up to 30 per cent for each of the two corresponding years.
REA Group director of economic research Cameron Kusher said values have traditionally fallen during downturns as far back as the recession in 1991. It's not until the crash is over that property prices tend to bounce.
The national house price index has been ticking higher over the last few months but Mr Kusher said a slowing in search activity on homebuying website realestate.com.au suggests it will peter out.
"This (current crisis) is a bit different because it isn't necessarily an economic issue, it's a health issue," he told news.com.au.
"Longer term you might see more investment coming back into the property market but for the short term, I don't think the housing market is going to be immune.
"The main reason for this is people will get worried about the economy slowing and potential job losses. The other thing is because this is such a health issue, I think people are going to be reluctant to go and look at property.
"You're not going to want to be around 40 other groups of people when you don't know where they've been and who they've been in contact with."