Australian shares swung wildly early on Wednesday, wiping tens of billions of dollars of value from the market over concerns the world’s two largest economies are headed for a full-blown trade war.
The S&P/ASX 200 opened slightly lower, before plunging more than 2% a few minutes into the session, erasing the rebound of the previous day. By midday, the benchmark had recovered to the 7,435 point mark, representing a 1% fall for the session.
Mining companies were early casualties of the drop, with BHP shares falling more than 4% in early trading. Australia’s largest biotech company, CSL, was also down more than 4% after Donald Trump announced that a “major” pharmaceutical tariff was coming soon.
Resources companies, especially those involved in iron ore extraction, are particularly sensitive to any slowdown in global economic growth and a trade war between the US and China.
The price movements, which followed a volatile session on Wall Street, came shortly before the US was scheduled to hit China with additional tariffs, due to be implemented just after 2pm (AEST) on Wednesday.
Analysts at IG warned that the Australian economy would be hit by the trade barrier.
“If China does dig in, tariffs on its imports to the US will rise to a staggering 104%, a dire outcome for Australia’s trade-dependent economy and a potential catalyst for another round of broader risk aversion,” IG analysts said.
The Commonwealth Bank chief economist, Luke Yeaman, said that while Australia was “relatively well-placed to weather the storm”, it would be subject to flow-on effects from a protracted trade war.
Over the past week, share markets have tended to fall when trade relations deteriorated and rebound when there were signs Trump would strike agreements with key economic partners. Australia recorded its worst trading day in almost five years on Monday.
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Resources and energy stocks have been hit particularly hard this week given demand for iron ore as well as oil and gas would be expected to drop if the global economy falls into a recession.
The early share price drops on Wednesday erased just over $50bn in value from the ASX, but those losses were cut in half by midday.
The Australian dollar headed towards the US59c mark overnight, before retracing some of the falls.
The weakness in the currency, which is heavily influenced by the Chinese economy given Australia’s resources ties, has made it more expensive for most travellers heading overseas and consumers buying international goods.
