Market wipeout: 2013 gains mostly erased

ASX drops 11% since April, erasing almost all gains since the start of the year

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published June 24, 2013 1:39 pm AEST

Investors are hurting, with the Australian stock market down for the fourth consecutive day. With the S&P / ASX 200 Index (Index:^AXJO) (ASX:XJO) sliding 1.3% in trading today, almost all of the gains from 2013 have been erased.

At the start of this year, the index was trading at 4,648.9 – it's currently at 4.674.3. From a 52 week high of 5,249.6, set in early May, the index has now slumped more than 10%. The falling Australian dollar, concerns of weak economic growth in China and the likelihood of the US tapering off its quantitative easing have all hit our market.

The Aussie dollar has dropped more than 11% since mid-April against the greenback, as the Reserve Bank of Australia cut interest rates, and the US dollar strengthened against most currencies. The US Federal Reserve announced last week that it was planning to cut back its bond buying program (quantitative easing), and could cease totally by mid-2014.

Equity markets have reacted like a drug addict about to be deprived of its favourite drug, and thrown what has been referred to as a 'taper tantrum'. The massive stimulus by the US was seen as pushing up the share prices of US companies, but take that away suddenly and investors have lost all confidence.

In China, economic growth that was expected to be over 7% now appears to be lower, with no indications that the Chinese government will add further stimulus to maintain expected rates of growth. Add in falling commodity prices and investors appear to be selling off anything they can get their hands on.

The ASX in particular has been hard hit, with international investors selling out of our large cap stocks, especially the big banks ANZ Bank (ASX:ANZ), Commonwealth Bank (ASX:CBA), Westpac Banking Corporation (ASX:WBC) and National Australia Bank (ASX:NAB). All four have run hard this year, but with the Australian dollar falling and equity investors nervous, it seems they are taking their profits and running.

Foolish takeaway

Analysts have suggested that the days of the Australian dollar keeping parity with the US dollar are over, and many expect it to slide further. As we have suggested previously, investors don't need to panic and patience is the key during volatile times like these.

In the market for high yielding ASX shares? Get "3 Stocks for the Great Dividend Boom" in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.