Things on the S&P/ASX 200 Index (Index:^AXJO) (ASX:XJO) are likely to get ugly today as a big fall in US equities last night saps confidence.
The economic fallout from the COVID-19 pandemic is deepening with analysts predicting that US jobless claims will retest its record high when the data is released tomorrow.
All the key US stock indices, such as the S&P 500 and Dow Jones Industrial slumped by more than 4% at the close. This sets the stage for the ASX 200 to return all of yesterday’s stunning 3% plus gains when it opens.
China scarier than the US
Adding to the gloom are predictions that the US market will stay lower for longer due to the impact the coronavirus outbreak is having on its economy.
But the thing ASX investors should be more worried about is the Chinese share market – and the overnight soundings there aren’t any cheerier.
While the Shanghai Stock Exchange Composite Index rebounded strongly as the country reopens after the dramatic lockdown, the index has since retested the lows. Chinese investors are losing their taste for risk assets, according to Bloomberg.
Lack of stimulus
This is largely because the big stimulus response that everyone was expecting from President Xi Jinping didn’t materialise.
Investors believed that China would do what it did during the GFC and pump billions into infrastructure construction and other programs to get its economy back on its feet.
This time round, Chinese leaders are reluctant to reuse the bazooka. The country is already encumbered with record debt that’s topped 300% of its GDP, according to the Institute of International Finance (IIF).
Playing chicken with debt
Many think its debt load is unsustainable, and obviously so does China’s Central Politburo. The country was trying to deleverage when it was hit by the Trump trade war – remember that?
If no new large stimulus is injected into the Chinese economy, this will have significant negative consequences for our share market. China remains our largest and most important trading partner.
ASX stocks will suffer
The price of the commodity performed resiliently even in the face of a deep global recession due to the pandemic. This was based on none other than the expectation of new mega infrastructure building works.
But the damage won’t just be confined to our iron ore minders given how intertwined the Australian and Chinese economies are.
Let’s just hope that fear of civil unrest from economic stagnation is enough for President Xi to take the chance with the debt demon.
Our experts here at The Motley Fool Australia have just released a fantastic report, detailing 5 dirt cheap shares that you can buy in 2020.
One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…
Another is a diversified conglomerate trading over 40% off it's high, all while offering a fully franked dividend yield over 3%...
Plus 3 more cheap bets that could position you to profit over the next 12 months!
See for yourself now. Simply click here or the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.
The Motley Fool Australia has no position in any of the stocks mentioned. 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.