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ASX investors seeking salvation should look to China

China is hardly a role model for anything. But battered ASX investors desperately seeking salvation should turn to the Asian giant for deliverance – not the US.

And make no mistake. Hope is in short supply with the US share market tanking 10% in overnight trade. The S&P/ASX 200 Index (Index:^AXJO) (ASX:XJO) is poised for another horror day with losses on our market potentially rivalling the 7% plunge suffered yesterday.

If this comes to pass, it will take the total loss to over 30% – and all this in just in a mere three weeks of carnage.

Shares crushed by a bear market

As it stands, around 27% of large- to mid-cap ASX stocks have already shed 30% or more of their value over the past month. The worst performers are logistics software group WiseTech Global Ltd (ASX: WTC), PNG-focused gas company Oil Search Limited (ASX: OSH) and travel agent Flight Centre Travel Group Ltd (ASX: FLT).

Global equities are in a free fall as Western governments shut down their economies and quarantine citizens to combat the COVID-19 pandemic. Prime Minister Scott Morrison will be under pressure to do something similar in Australia, which would be extremely devastating to our economy.

Draconian measures in action

But extreme isolation measures work. Just ask China. New infection cases have plummeted and its citizens are slowing streaming back into the streets.

While things aren’t back to pre-coronavirus levels and, it might take a while more to get there, media reports show that life is slowing going back to normal in the major cities like Beijing. There are even reports that Chinese shoppers are back snapping up luxury goods as they emerge from quarantine.

There’s no fighting for toilet paper in that country!

Changing face of the recession

Assuming that China is on a sustainable path to post-virus recovery, it tells us two important things. The first is that the supply-side recession will soon turn into a demand-side depression.

When the novel coronavirus shuttered China’s factories, the world was bracing for economic contraction due to the lack of goods. Now that the US and large parts of Europe are adopting draconian isolation measures, there will be far fewer buyers on the other side.

Too early to buy bargains

Perhaps more importantly for ASX investors is the timing of the recovery. It took China about a month and a half to contain the problem with its mass house-arrest policy.

It will take at least that long for Western nations to get results. But the market will bottom well before the number of new infections drop. It’s s mugs game trying to pick the market bottom, but my guess (and it’s only a guess) is that we might only see the turning point in mid to late April.

In order words, it is probably too early to be bargain hunting.

This assessment is predicated on governments having the political will to enforce rules associated with police states.

Who says there are no advantages of living in a dictatorship?

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. The Motley Fool Australia owns shares of WiseTech Global. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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