Ravaged banks send Aussie shares into bear market territory

Australian shares have entered the bear market after fresh falls in banking and mining stocks see the benchmark tumble to new lows

At the close on Wednesday, the benchmark S&P/ASX200 index was 56.4 points, or 1.17 per cent, lower at 4,775.7, while the broader All Ordinaries index was down 56.1 points, or 1.15 per cent, at 4,826.5, extending Tuesday's 2.88 percent drop. The benchmark had fallen as much as 2.6 percent mid session to 4,706.7, a low not seen since July 2013, but managed to pare back losses though sentiment remains fragile.

Strong half-year earnings in the Commonwealth Bank of Australia couldn't stop the financials being ravaged once more, sending the bourse down 20 percent from its April high into official bear market territory.

"The ASX financial sector just looks so bearish from a technical perspective and this is killing the overall markets, although better buying has been seen into the afternoon and this could be very telling," IG chief market strategist Chris Weston said.

Short sellers are finding the most favourable opportunities on the local market they've had since the Global Financial Crisis as buyers lack any conviction, however things are starting to get desperate as the rhetoric to ban short selling has picked up, Weston said.

"Globally there is a hunt for one's equity, not a return on equity," Weston said.

However short selling isn't a necessarily a bad thing, Weston said, as it should accelerate the need for traders and investors to rethink their portfolio risk.

"With sovereign wealth funds reducing their exposure to financials and valuations in the space still not a discount to long-term averages, the savage selling is actually accelerating prices to where the real 'value' is," Weston said.

"Watch the shorts run for the hills when they sense the funds are looking to buy again."

The Commonwealth Bank of Australia was the only island of green in a sea of red on Wednesday, up 1.83 percent after announcing a 4.8 billion Australian dollar first-half profit.

However despite CBA's large presence, the gain was undermined by the other banks, with ANZ down 1.62 percent, the National Australia Bank lost 1.93 percent and Westpac slipped 0.59 percent, following U.S. and European banking stocks down. There are deep liquidity concerns in the European banking sector, flat yield curves in U.S. financials while in Australia there is concerns about long-term funding costs reducing net margins and yield.

BHP Billiton fell 2.49 percent, rival Rio Tinto shed 1.17 percent and gold miner Newcrest dropped 3.27 percent.

Oil Search slid 2.37 percent, Santos retreated 2.61 percent and Woodside Petroleum is 0.94 percent weaker.

Wesfarmers is down 1.70 percent while Woolworths slumped 3.25 percent.

Qantas edged 0.27 percent lower while Telstra is 3.21 percent lower. Endit