With Europe trying to deal with its debt crisis, the effects have been felt by Australia as over $120 billion had been wiped off its shares in the market in the month of May. This has been the lowest level that Australia’s stocks had fallen in six months.
The market had plunged by 2.6 percent, wiping off about $35 billion from the local shares. With the market’s loss reaching $121 billion with its year’s peak on May 2, Australia could have already bought A380 super jumbo jets.
It has been predicted by brokers that such plunge will still continue up until the time of the next round of elections in Greece are held.
"I think we're going to be subdued till then with more negative than positive," said Michael Heffernan, Lonsec strategist.
According to IG Markets Analyst, Stan Shamu, it is difficult to predict what can possibly happen in the coming weeks and months considering that the market has already been pricing in the worst case scenario in Europe.
"People are now scared that we will get a lot of contagion from Greece and Spain and the situation will end very badly," he said.
With this, brokers agree that to reassure global markets, a quick resolution will help. However, they are doubtful of the extent of the impact it will have.
According to Mr. Heffernan, there would not be much of an impact to the market even if Greece leaves the euro zone and goes back to the drachma.
"That means there will probably be a depreciation in the currency, which means a lot of people who have lent money are going to suffer, and that should be good for their exports in the long term," he said.
However, Geoff Saffer, head of research of the Australian Stock Report, said that all these are dependent on the action that the European Union will take in order to ensure the rest of the countries their economic future.
"Certainly until there is a clear resolution in Europe we don't expect significant buying to come back in the market," he added.
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