Australia’s share market could drop more than two per cent on Monday after heavy losses on world stock markets driven by fears about China’s slowing economy.
CommSec chief economist Craig James says it will be “follow the leader” at Monday’s local open after major sell-offs on Wall Street and in Europe.
US share prices plunged more than three per cent on Friday while London’s benchmark FTSE sank 2.83 per cent.
“The futures market is pointing to a fall of around about 110 points or 2.2 per cent,” Mr James said.
“It’s about uncertainty – and uncertainty about so many different things.”
They include the Chinese economy, US interest rates, falling oil prices and the Greek bailout.
“Investors don’t like uncertainty, but we still believe this is the pause that refreshes, that basically these declines were really needed because some of the markets were getting a little bit overvalued,” Mr James said.
Australia’s economy was in better shape than many global markets to weather this storm, he said.
“We’ve seen this all beforehand. Twelve months ago we saw significant declines in global markets and in a fairly short space of time markets have rebounded back earlier this year,” he said.
“The big thing for us is our economy is in very good shape and if we do need to cut interest rates, we’ve got plenty of ammunition to do so, compared with other countries in the world where interest rates are at zero.”
There are no surprises expected in the last week of the profit reporting season, Mr James said.
“So far it’s gone according to script, the economy has been relatively soft over the past 12 months and that’s been reflected in the soft profit results,” he said.
Overseas, the US is expected to release revised figures on economic growth later in the week and expectations are for a good result.