Global stocks enter a bear market

Australia has woken up to a bear market.

On Thursday, the MSCI all-country world index closed down 20% from its recent high, putting the global share market into a bear market.

In Australia, the S&P/ASX 200 index broke through a key support level of 4800, eventually falling to 4706.7 — placing the index in a bear market.

These falls come despite Commonwealth Bank revealing a reported 4 per cent rise in profit, its share price rose 1.8 per cent to $74.20.

It was bad news for the other four banks however, Westpac Banking Corporation declined 0.6 per cent to $28.53, National Australia Bank took a fall of 1.9 per cent to $24.42,  and ANZ Banking Group ended 1.6 per cent lower to $22.42.

The bear market has summoned up memories of the 2008 GFC but experts are dismissing fears, explaining that despite the dramatic drops, the real economy is doing well.

“Given the very real challenges around the world, we can probably expect more damage to the markets,” wrote Brad McMillan, chief investment officer for Commonwealth Financial Network. “What we likely won’t see is continued economic damage or a U.S. economic crisis. The very factors that are battering the markets are, in large part, positive for the real economy.

“In 2008, the real economy was broken, with consumers borrowing money they did not have to buy assets they could not afford at prices that made no sense,” McMillan continued. “Today, we have jobs, savings, and rational prices in the real economy. A downward adjustment in financial values won’t change that, and that same solid foundation will eventually allow the market to recover as well.”

The world is also holding their breath as China’s economy experiences a troublesome period. The latest China Resources Quarterly (CRQ), published jointly by Bill Evans Westpac’s chief economist, and Mark Cully, the chief economist at the Department of Industry, Innovation & Science, takes a look at the ever-changing economy. The report concede’s that China’s domestic growth outlook is “fragile and exports are falling.” The report goes on further say that China’s “nominal activity growth is extremely subdued vis-a-vis the double-digit percentage growth rates that were de rigeur for much of the last decade”.

The bear market is being looked at with optimism, and for consumers with an interest in building their stock portfolio, a bear market is prime time.

Lincoln Indicators chief executive Elio D’Amato tipped Australian Financial Review with what he believes are the three best companies to buy shares from in the current environment.

Mr D’Amato pointed to blood plasma company CSL, retailer Wesfarmers and online real estate company REA Group.

Whether we will be in a bear market next week is unpredictable, stay tuned! It’s always a drama on the stock market.