ASX Shares Market Update: What will be the turning point?

Richard Hemming

China: The evidence so far

The virus that is now known as COVID-19 was first transmitted in December 2019 in Wuhan China, the largest city and capital in Hubei, a land-locked province in Central China, which has a population of close to 59 million. That region has had some 65,000 cases and a fatality rate of 2.9%. Contrast this with the rest of China, some 1.3bn people, which has suffered fewer than 13,000 cases with a fatality rate of 0.4%.
Although Government officials were initially slow to react, the subsequent seemingly draconian measures worked in increasing public awareness: stopping public transport, shutting factories and ordering people indoors.
Fast forward less than four months and there are real signs that China is opening up again for business and that factory utilisation is climbing.
We think that this provides evidence that there is a limit to the ravaging COVID-19 has on an economy, although there are fears of a secondary outbreak.

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What are the signs to look for that we are at a turning point for our health and our ASX shares?
One of the factors that led to a resurgence in stock market buying in China in February, was when more people were leaving hospitals than were entering them in Hubei. Similarly, the market is looking for slowing day-to-day growth in Europe and the US of COVID-19 cases, which is an indicator that the virus has or is getting closer to the peak. Until then stock market volatility will be high.

Potential economic impact

In terms of economic impact, there has been a study done by RBA board member Warwick McKibbin and Alexandra Sidorenko, when at the Australian National University. In the Spanish Flu outbreak of 1918-19, global GDP fell 5%, representative of a severe scenario for Covid-19. A medium-scenario sees a 2% hit to global growth, which would probably mean a global recession.

Is it time to buy ASX shares yet?

Equity markets look further forward than any other. We think we are close to peak uncertainty, which should mean that there are opportunities to buy small positions in quality ASX shares to capitalise on a rebound.

Best Shares to Buy: Buy Quality, we tell you which Blue Chips to Buy

Like we did with our Small Cap universe, tomorrow Under the Radar is coming out with a number of Blue Chips for our Blue Chip subscribers that we regard as being of particularly high quality. In this case, our focus will be heavily on dividends. Dividends are at risk of being cut or suspended in the current half and we identify those that can maintain them and even grow earnings during these times of distress.

ASX Share Portfolios

Use our ASX Share Portfolios as a guide on which shares to own and the weight we place on those shares. This will guide you no matter how much you are investing in the share market.

About the Author

Richard Hemming

Investment analyst and Editor of Under the Radar Report

Under the Radar Report is licensed to give general financial advice only (ASFL: 409518). The author does not own shares in any of the stocks mentioned.

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