Investor fears on world markets flowed through into local share trading yesterday as concern mounted about growth in the leading economies of the United States, China, Japan and the European Union.
Investors appeared to be less confident about economic growth and more concerned about the uncertainty prevalent in many parts of the world, with most sharemarkets posting losses of around 1 to 2 per cent since Friday's close.
Uncertainty emerged last week when the US Federal Reserve painted a more subdued picture of growth for the world's biggest economy than the market had anticipated and Fed vice-chairman Stanley Fischer said efforts to normalise US monetary policy after years of quantitative easing might be hampered by the poorer global outlook.
In addition, the International Monetary Fund revised down its global growth forecasts to 3.3 per cent for calendar year 2014 and 3.8 per cent for 2015, specifically singling out Europe and Japan as laggards. The IMF now sees a near 40 per cent probability of the eurozone going back into recession by mid-2015.
Also playing on investors' minds has been the rise and rise of Isis forces in Iraq and Syria, the ongoing sabre-rattling between the West and Russia over the Ukraine and the sharply rising death toll from the Ebola virus in Africa.
In the US, the S&P 500 index closed on Friday at 1906 points - down 1.2 per cent and its lowest point since May. Over the week, the index dropped by 3.1 per cent and has fallen by 5.2 per cent since hitting a record high last month.
European markets ended weaker and all Asian markets dropped to seven-month lows when they reopened yesterday.
In New Zealand, the benchmark NZX 50 share index finished almost 50 points (0.95 per cent) down at5175.
According to Bloomberg, equities worldwide have lost about US$4.4 trillion ($5.6 trillion) in value since reaching a record last month.
ANZ chief economist Cameron Bagrie said several elements were combining to cause a heightened state of nervousness on international markets.
"Six years after the global financial crisis there is now more debt in the financial system than there was in 2008, so a lot of structural issues that needed to be addressed after GFC have not been dealt with," Bagrie said.
There was now low growth in Europe at a time of rising indebtedness and economic growth in Europe's economic powerhouse - Germany - looked to have stalled.
In addition, risks were emerging in China, with real estate prices starting to retreat.
Several years of quantitative easing by the US Government and several other big countries had left many governments financially strapped, making them less capable of dealing with "black swan" events such as a bank failure or an unexpected sovereign debt default, he said.
Bagrie said turmoil on world markets was a "warning shot" for New Zealand because the economy did have points of vulnerability, with the current sharp decline in dairy prices being just one.
"You can't read too much into last week's market movements, but we are very watchful, because these sorts of things can cascade and become somewhat exponential in regard to their economic impact."
Xero's stock keeps tumbling
Xero shares took another tumble yesterday, extending losses from Friday after analysts questioned the company's North American growth.
The online accounting software developer's stock closed down 6.3 per cent at $17.95 last night, below the $18.15 issue price of the company's $180 million capital raising it conducted a year ago with high-profile US investors including Peter Thiel-backed Valar Ventures.
Trading restrictions on the new shares issued in the capital raising end on Thursday and there has been market speculation that newly freed-up stock could be sold, which would drive the share price down further.
Xero shares, which hit a record high of $45.99 in March, valuing the company at almost $6 billion, fell through the key $20 support level on Friday after analysts expressed disappointment about the company's Thursday operating update, which showed only 4000 new US customers had been added, to reach a total of 22,000, in the six months to September 30.
Goldman Sachs downgraded its recommendation to a sell, while other analysts lowered their 12-month price targets on the stock.
A global dip in investor sentiment has also weighed on Xero shares.
Markets under the microscope
Why are sharemarkets falling?
Market sentiment turned negative over concerns about the economic growth in the world's main economies of United States, China, Japan and Germany.
What are the other issues?
Unrest in the Middle East, concern over Russia's position on the Ukraine, and the spread of the Ebola virus are also weighing on investor sentiment.
What does this mean for interest rates?
Market expectations are that the Reserve Bank will start raising interest rates by March next year. If the current uncertainty persists, it could mean a delay, according to ANZ.