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Investors suffered a severe long-weekend hangover as Australian shares played catch-up with two days of turmoil on financial markets after China’s Covid crisis deepened and Wall Street swung wildly.

The S&P/ASX 200 slumped 135 points or 1.8 per cent by mid-session. The decline dragged the index to a four-week low.

The heavily-weighted materials sector lost almost 5 per cent in the wake of sharp declines in raw materials. Energy producers also suffered heavy losses on demand worries after Beijing began citywide Covid testing. Fewer than one in four ASX 200 companies resisted the sell-off.

What’s driving the market

The Australian benchmark turned negative for the year as investors reacted to events across the long weekend. There was plenty to digest after the Dow suffered its biggest fall since 2020, Chinese shares plunged more than 5 per cent and iron ore collapsed by almost 10 per cent.

A tentative rebound on Wall Street overnight was overshadowed by Friday’s bloodbath and by fears Chinese demand for Australian commodities will plunge if the Shanghai lockdown widens. The Dow bounced 238 points or 0.7 per cent, recouping less than a quarter of Friday’s 981-point loss. The S&P 500 gained 0.57 per cent.

Europe’s main benchmark dropped 1.81 per cent to a six-wek low. Copper and gold touched multi-month lows.

All eyes were on Asia after the Shanghai Composite dived 5.13 per cent yesterday and Hong Kong’s Hang Send lost 3.73 per cent. The plunge followed the launch of citywide Covid testing in Beijing to avert a Shanghai-style lockdown.

“Combining the China developments with the overall peaking of the US equity market and the commodity price drop on the day, it is a fraught environment that Australian stock investors [face] this week,” the chief economist of ACY Securities, Clifford Bennett, said. 

The dollar fell more than 2.5 cents against the greenback across the holiday weekend as investors dumped “commodity currencies” in favour of the safety of the US dollar. After trading above 74.5 US cents heading into the long weekend, the Aussie edged up 0.3 per cent this morning to 72 US cents.

“The outlook for Australian equities and the Australian dollar remains somewhat heavy,” Bennett said.

The Shanghai Composite bounced 0.63 per cent this morning. Hong Kong’s Hang Seng rallied 1.15 per cent. The Asia Dow gained 0.21 per cent and Japan’s Nikkei 0.51 per cent.

The ASX 200 has given up more than 250 points in two brutal sessions. Today’s fall followed a 119.5-point plunge on Friday that was the benchmark’s heaviest loss in two months.  

Going up

Just three of the top 200 companies gained more than 2 per cent. Afterpay owner Block advanced 2.71 per cent, UK banking group Virgin Money 2.48 per cent and property developer Mirvac 2.08 per cent.

Buyers sniffed around traditional defensive pockets of the market, including healthcare, consumables and real estate. Ansell gained 1.64 per cent, Endeavour Drinks 1.81 per cent and Stockland 0.84 per cent.

Pushpay jumped 19.27 per cent on takeover interest. The donor management system provider said it had received “unsolicited, non-binding and conditional expressions of interest or approaches from third parties looking to acquire the Company”. Goldman Sachs will advise the company, which also reaffirmed its full-year guidance.

At the speculative end of the market, BMG Resources jumped 41.67 per cent on positive drilling results from the Abercromby gold project.

Market hunger for battery metals saw Lithium Plus soar 184 per cent upon listing this morning.

Going down

The iron giants and energy producers led the retreat of the market heavyweights. Fortescue Metals fell 6.74 per cent, BHP 5.42 per cent and Santos 4.36 per cent. Rio Tinto lost 4.1 per cent.

Woodside Petroleum slumped 5.18 per cent on news sales revenues fell 17 per cent last quarter on weaker trading activity. The average realised price improved by 3 per cent to $93 per barrel of oil equivalent.

A 15 per cent jump in revenues on improved oil prices helped cushion Beach Energy from news production declined 3 per cent last quarter. Production was affected by rain delays in the Cooper Basin and planned maintenance in the Bass Basin. The share price declined 3.78 per cent.

An earnings downgrade cost payments platform EML more than a third of its market value. The share price tanked 35.7 per cent after the firm lowered its full-year underlying earnings guidance to $52-$55 million from previous guidance of $58-$65 million.

A blowout in costs dragged South32 down 8.68 per cent. The diversified miner updated guidance to reflect negative currency moments, higher raw material costs and higher price-linked royalties. Production guidance was unchanged.

Nufarm shares hovered near two-and-a-half-year highs after the agribusiness confirmed the earnings hit from the Ukraine war would be immaterial. The firm has “nascent operations” in both countries, but said its exposure was limited. The share price dipped 0.3 per cent.

Investors were underwhelmed by guidance from United Malt. The maltster’s shares fell 4.26 per cent on news full-year underlying earnings were expected to be in the range of $115-$140 million. The company faces up to $25 million in costs from severe drought conditions in Canada.

A record quarter cushioned Perseus from the worst of the selling. The gold miner increased production by 2 per cent and reaffirmed half-year guidance. The share price eased 4.27 per cent.

Other markets

US futures added to overnight gains. S&P 500 futures inched up four points or 0.1 per cent.

Oil and gold also recovered. Brent crude firmed 55 US cents or 0.5 per cent to US$102.71 a barrel. Gold rebounded US$7.20 or 0.38 per cent to US$1,903.20 an ounce.

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