The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) suffered a sharp sell-off late in today's session and ended the day trading 0.9% lower at 5320 points, despite trading as much as 0.4% higher around noon.
The market's rout was led by the big four banks with Australia and New Zealand Banking Group (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA) hit particularly hard. ANZ fell 1.4% to trade at $29.02 a share after it provided a trading update for the nine-months ended 30 June 2015, while Commonwealth Bank was smashed 4.9% after hitting a new 10-month low of $77.11 this afternoon.
Although Commonwealth Bank's loss can partially be attributed to the stock going ex-dividend this morning, investors are also feeling the headwinds facing the sector. Indeed, bad debt charges look set to reverse course in the not-too-distant future, while the banks are also becoming increasingly concerned about certain areas within Australia where defaults on loans seem likely.
It's also possible that a release from Fitch caused some of the market's pain. As highlighted by the Fairfax press, the ratings agency said it was likely the banks would need to raise more capital over the medium term with much of the market's losses coming after that release.
So far, the banks have raised a combined $16 billion in capital and some experts believe they could need to raise another $25 billion between them. National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC) also retreated 1.2% and 0.5% this afternoon.
Also weighing on the local market's performance was another selloff on China's stockmarket. The Asian nation's equities market has been volatile in recent months and investors are fearing it could be due for another decline with the SSE Composite Index down 3% today alone.
Elsewhere, BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) fell 0.5% and 0.3% respectively, while Crown Resorts Ltd (ASX: CWN), Woodside Petroleum Limited (ASX: WPL) and Insurance Australia Group Ltd (ASX: IAG) fell 3.7%, 1.4% and 0.6%, respectively.
Indeed, there is plenty of uncertainty facing the Australian sharemarket right now and investors are clearly hesitant to buy in case of further falls. While now could be an excellent time to take advantage of the market's fear, it is also important that investors ensure they're prepared for more pain should further falls eventuate.
