Over the September 2011 quarter, sovereign debt concerns relating particularly to Greece and the impact that a default may have on European banks holding Greek government bonds continued to escalate. These concerns led to a substantial global sell-off of equities early in August with falls in the range of 13 to 25% for most regional equity indices. The Australian equities market performed better than most with the S&P ASX 200 Index falling 13% for the quarter to be down 12.5% for the 12 month period.

Global equity markets have continued to be very volatile over the past 2 weeks since the end of the quarter and there has been some retracement from the market lows seen in the latter part of September as investors anticipated a measure of progress towards a resolution of the sovereign debt problems of Europe. Australian equity markets followed the global trend with the S&P ASX 200 Index reaching 4,205 from the recent low of 3,872.

All eyes will be on the G20 over the next 2 weeks as it grapples with the Greek situation and the necessity to limit contagion within Europe. Over recent days the Slovakian government has ratified the July proposals for the European Financial Stability Fund, the final EU member to do so. Over the past week or so, much of the discussion has centered around how the effect of the fund’s stability package can be substantially increased and the extent to which holders of the Greek government bonds will be required to accept losses on their holdings.

Wayne Morgan

Managing Director and Representative

Click here for the Quarterly Economic and Market Commentary October 2011

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