Australia shares drop nearly 2% as overnight oil crash curbs risk appetite

* Australian shares hit lowest since April 6

* New Zealand index touches one-week low

By Shashwat Awasthi

April 22 (Reuters) – Australian shares fell almost 2% on Wednesday, dragged by energy stocks as a rout in crude oil prices overnight underscored fears of a severe economic fallout from the coronavirus pandemic and fuelled broad risk-off sentiment.

The SP/ASX 200 index fell 1.8% to 5,127.5 by 0020 GMT, after having hit its lowest level in more than two weeks earlier in the session.

Brent oil futures were trading nearly 2% higher, after two of the most turbulent days in the history of oil trading as markets reeled in the face of a supply glut and an almost complete erosion of demand due to coronavirus-induced lockdowns.

“Dislocations within the physical market for North American oil will cause exceptionally high short-term price volatility,” analysts at Moody’s Investors Service said.

Energy stocks were the top losers on the main Aussie bourse with a drop of 3.5%. The sub-index has slumped more than 10% so far this week on falling oil prices.

All other major sub-indexes were also in the red.

The benchmark stock index has itself shed roughly 7% this week after gaining for four straight weeks, as the spectacular crash in crude prices has started to weigh on hopes for global recovery and stoked recession worries.

“Global markets are teetering on the edge of a second leg down,” said Michael McCarthy, chief market strategist at CMC Markets.

“Increasing signs of corporate distress and the clear evidence of demand destruction in markets are driving investor sentiment back towards safe havens.”

At home, prospects remain equally grim, with the Reserve Bank of Australia warning the country will suffer a “once in a century” economic contraction in the first half of 2020.

As a result, firms are tapping equity markets to shore up capital needs. Ramsay Health Care, whose shares were on trading halt, is planning the biggest capital raise by an Australian company since the pandemic emerged.

New Zealand’s benchmark SP/NZX 50 index declined 1.5% to a one-week low of 10,380.8, and was on course for its third straight session of losses.

But a2 Milk outperformed with a 2% gain after the dairy producer forecast higher annual sales and hiked its margins forecast. (Reporting by Shashwat Awasthi in Bengaluru; Editing by Subhranshu Sahu)