A recession seems almost certain for every major economy in the world. But that doesn't mean ASX shares will fall from here. They could rise over the rest of the year.
Shouldn't ASX shares be falling more?
Logically, you'd think that the worse the economic numbers become, the lower the share prices would go. Share prices of big banks like Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) have taken a beating over the past few months.
Australia isn't officially in recession territory yet. It takes two quarters of GDP decline for that declaration. The unemployment rate is expected to get up to 10%, maybe more.
The thing is, these economic readings are already being forecast by many investors in ASX shares. There's a reason why the S&P/ASX 200 Index (ASX: XJO) is down by 25% from 21 February 2020.
If you knew in advance when the worst point of the US unemployment rate of the GFC would be and invested at that point in 2010, you'd have missed out on large gains of the share market which started in March 2009.
ASX shares may well drop further from here, no-one has a crystal ball. But the share market recovery could start much sooner than the overall economy's. Investors are looking into the future, rather than considering lagging economic indicators.
When a recession for Australia is officially declared, we could actually see the ASX share market perform well if the worst appears to be passing.
Investors may yet prove to be too optimistic about how quickly Australia can get over the coronavirus impacts. But don't forget that the Australian interest rate is now extremely low. The RBA is providing a lot of additional liquidity support.
A business shouldn't be valued on how much profit it's going to make just this year. It should be based on the next several years.
When is the right time to buy?
I think it's always a good time to buy ASX shares for the long-term compounding growth effect. There are better times to buy than others, such as when prices are lower.
Prices are a lot lower right now. ASX shares could fall even further, but we don't know that they will. I'm still seeing plenty of attractively priced opportunities right now, which is why I'm still putting money to work, even today.
