Australian shares are set for more volatility in the week ahead on continuing uncertainty from the United States and increased fears of a recession Down Under, dealers said on Friday. For the week ended November 21, the benchmark S&P/ASX 200 dropped 333.1 points, or 8.9 percent, to 3,416.5.
The market would have lost even more but for Friday's rally which saw the bourse gain 1.9 percent for the day after sinking more than 3.0 percent shortly after opening following a steep drop on Wall Street overnight. IG Markets research analyst Ben Potter said the market staged a "breathtaking afternoon rally" after being written off for dead in the morning.
"The market simply became too oversold, resulting in a fast and furious rally," Potter said.
Oliver Stevens, head of dealing at IG Markets Australia, said Friday's rally showed "the market has still got a bit of appetite for fight out there". "There's a few buyers left who are prepared to step in and look for some value," he told AFP.
"All I can guarantee is that there's going to be more volatility. Unfortunately, we could be anywhere next week." Analysts said the market had been stung by more gloomy domestic data as well as the perception that the United States was in a policy vacuum until US president-elect Barack Obama takes power in late January.
"At the moment they're saying, 'Let's just wait and see until January'. And the market doesn't like that," he said. Shane Oliver, chief economist at AMP Capital Investors, said mounting concerns about a global recession helped drag Australian shares lower.
Meanwhile local economic data remained bleak, with mid-year tax cuts failing to greatly boost retail sales and other indicators pointing to much weaker growth, if not a recession, ahead. "Shares remain in a severe funk reflecting the ongoing flow of bad news regarding the global economic and profit outlook," he said in a statement. "While the bulk of the damage is likely behind us and shares are very oversold and due for at least a bounce, it is still too early to say we have seen the end of the bear market. Particularly, with the economic news likely to continue to worsen into early next year."
Oliver said Australian shares have now fallen 52 percent from their high last year - a worse drop than the 1987 crash in which shares fell 50.1 percent. "While the outlook for shares over the next few months is anyone's guess, they remain excellent value from a long-term perspective," he said. "They should eventually benefit over the year ahead from high dividend and earnings yields relative to bond and cash yields, and the anticipation of better economic and financial conditions in 2010."