$28 billion wiped off the market: Market crash ahead?

ASX falls 1.8% as energy and resources stocks crushed

Mike King

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 December 1, 2014 3:39 pm AEDT

The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has dropped 1.8% as we head into the final hour of trading on the ASX today.

That equates to around $28 billion in value wiped off the market. And it could get even uglier before the day is out, as investors and traders abandon ship.

Source: Yahoo Finance

The large oil stocks are leading the falls, with Santos Ltd (ASX: STO) down 9.7%, Woodside Petroleum Limited (ASX: WPL), and BHP Billiton Limited (ASX: BHP) down 4.9% at $29.42. Not many people realise that one third of the giant miner's revenues comes from petroleum sales.

Origin Energy Limited (ASX: ORG) which is not just a retailer of electricity and gas but an energy producer is also down, losing 4.5%.

The falls illustrate how dependent Australia's economy is on resources exports. Iron ore, coal and gas are among our top export earners, but recent falls in commodity prices has seen some of our major companies hammered.

And as our large cap stocks make up a significant portion of our index – their falls produce a big drag on the market. Having said that, small cap stocks are getting hit even harder today, with the S&P/Small Ordinaries (Index: ^AORD) (ASX: XAO) down 3.5%.

The Small Ords contains many smaller gold, copper, oil and gas and more speculative resources stocks. Leading the falls in this index are Tiger Resources Limited (ASX: TGS) and PanAust Limited (ASX: PNA), both copper stocks and both down more than 23% as I write.

Copper prices fell to their lowest levels since 2010 on the London Metal Exchange, with many investors suggesting that China's economic growth is slowing and demand for commodities is set to fall in the years ahead.

Now, December has usually been a positive month for the Australian stock market as my colleague Bruce Jackson pointed out here. But maybe not this year given today's market fall, and we may have to wait until early next year for some strong drivers.

Even if December does prove to be a fizzer, Foolish investors would be wise (and Foolish) to continue to buy quality companies at cheap prices and hold for the long-term. It's something I plan on doing.

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