Australian sharemarket is diving amid a global sell-off sparked by fears of deflation

The Australian sharemarket is diving amid a global sell-off sparked by fears of deflation and standstill economic growth, with a plunge on the Chinese markets pushing the local index to a two-year low at noon.

Stocks on the local exchange fell sharply at the open, with the benchmark index quickly moving to its lowest point since December 2013 in early trade following Friday’s 3 per cent plunge in US equities.

China’s main stockmarket gauge, the Shanghai Composite index, tumbled 6 per cent in the first minutes of trade, despite Beijing authorising the state pension fund to invest in stocks to shore up the markets.

At 12.05pm (AEST) the S&P/ASX200 index was down 136.5 points, or 2.62 per cent, to 5078.1, while the broader All Ordinaries slumped 137.4 points, or 2.63 per cent, to 5087.4.

“Today has all the hallmarks of being one of the worst trading days of the past five years,” IG market strategist Evan Lucas said.

“Fear-selling is now stronger, faster and harder than ever before, and now there’s another pressure to it — are central banks out of tricks.”

The market briefly touched as low as 5066.8 points — the weakest point for the index since June 2013.

The benchmark index is more than 6.5 per cent lower year-to-date, and around 15 per cent below its 2015 peak near 6,000 points in April.

The volatility index for the Australian sharemarket today hit its highest point since mid-2012. Mr Lucas said fears of deflation and growth-less economies were producing GFC-like volatility.

Today’s decline followed the rout on Wall Street at the end of last week, with the Dow falling more than 1,000 points for the week, as concerns about China’s economy pushed the index into correction territory.

Japan’s Nikkei opened 2 per cent lower today, while New Zealand’s stock market was tracking around 2 per cent weaker at noon.

CMC chief market analyst Ric Spooner said investors are taking a safety first approach to the sharemarket given the potential for instability related to capital flight from emerging economies.

“Until recently investors were looking forward to some US-led stabilisation and even improvement in global economies,” he said.

“However, the ongoing sell off in commodities and concerns about growth in China have more people thinking in terms of global deflationary pressure.”

Oil prices have fallen below $US40 a barrel for the first time since 2009, with the commodity logging its longest streak of weekly declines for 29 years.

Energy stocks dropped in today’s trade, while mining stocks also fell sharply.

Copper, a barometer for the health of the global market, is trading below $US5000 a tonne after logging seven weekly losses in a row.

Meanwhile, the price of gold, typically a safe-haven investment, is on track for the best weekly gain since January and is well above $US1100 an ounce.

Financial stocks, which account for around 40 per cent of the weighting on the benchmark index, were deep in the red at noon.

The local market closed sharply lower on Friday with the main indices more than 1 per cent weaker as all sectors fell into the red, except for gold, on fears about China’s slowing economy.