Panic selling by investors after the Chinese share market was suspended for the second time this week has wiped off around $37 billion from the Australian share market.
The All Ordinaries index continued a New Year four-day horror run, falling around 2.1 per cent to rest at 5,068.8 points on Thursday.
The latest suspension of markets on the Shanghai and Shenzen exchanges stoked fears over the strength of China's economy and the adverse affect that a hard landing could have on Australia, a major supplier of iron ore and other resources.
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Thursday's sell-off affected nearly all stocks except for the gold sector and airline operator Qantas, with energy and mining stocks hit the hardest. Global miner BHP Billiton fell 4.8 per cent, while energy giant Woodside Petroleum tumbled 5.1 per cent and the big four banks all lost between two and three per cent.
Mining and energy stocks were already being sold off in early trading after oil prices slid to an 11-year low on concerns China's economy.
But the selling intensified after trading on the mainland China markets was frozen following a fall of seven per cent.
The latest plunge was sparked by another move by the Chinese government to lower the value of the yuan in a bid to boost flagging exports.
CMC Markets chief market strategist Michael McCarthy said local investors were clearly anxious.
"I think it's because of the belting we've had this week and the growing levels of fear," he said.
The Australian share market has been in the red all week and shed about $87 billion in value.
Adding to the woes about China have been tensions between major oil producers Saudi Arabia and Iran, and a nuclear weapons test by North Korea.
China's share market is increasingly being perceived as a barometer for the country's economy although some market observers say it shouldn't be.
"It's always true that the stock market is not the economy, and the economy is not the stock market," Mr McCarthy said.
"But it's even more particularly true in China where we get a lot of official intervention in the market, and we also are restricted in who can access that market.
"So while it is not to be ignored, it is not signalling that growth in China will slump to three per cent this year."
IG market strategist Evan Lucas said the Chinese market suspension and recent data showing more weakness in the Chinese manufacturing and services sectors had investors questioning how much pressure the economy is under.
"If that hard landing which everyone has been calling for quite a while actually comes to fruition it will have an adverse fallout for Australia, without fail," he said.
Mr Lucas said nearly all stocks on the Australian market were dumped on Thursday, as investors sold stocks indiscriminately.
He said the slide would eventually be arrested because at some time, stocks become so cheap that investors feel compelled to buy.
What could arrest it?
"A bit of a return to commonsense in China," Mr Lucas said.
