Warning: One thing could plunge ASX shares into crisis

Can COVID-19 shatter market confidence once again? Yes, says one expert — if this dramatic event occurs.

| More on:
shareholder being investigated by asx and hiding behind desk

Image source: Getty Images

There is one event that could see ASX shares plunge, and we’re closer than ever to it occurring, warned one expert.

Betashares chief economist David Bassanese said that last week’s preliminary May retail sales figures were “weaker than expected”, with Victoria’s recent lockdown a contributor.

But the big development was further north.

“The other major news, of course, was the rising COVID case count in Sydney and the eventual announcement of a 2-week lock down of the metropolitan area — including yours truly!” he said in a memo to clients.

“Perhaps it’s no surprise Australian equities lagged last week.”

On Monday morning, NSW had recorded 18 further cases of coronavirus community transmissions in 24 hours. The state has seen 121 cases in total over the past week.

Until 11:59pm 9 July, Sydney residents are forbidden from leaving the metropolitan area. They are also required to stay home unless they head out for one of just 4 essential reasons.

This week is huge

Bassanese was wary of whether the virus could be suppressed in Sydney and how much the fast-moving Delta variant could spread into other states.

“A broadening in lockdowns to other states and/or an escalating Sydney case count — suggesting a longer than 2-week lockdown — will be increasingly hard for the currently buoyant Australian share market to ignore.”

Rising, or even a steady level of, coronavirus cases in Sydney could force the NSW Government to extend the current lockdown.

And that’s the one event that could bring ASX shares to their knees, according to Bassanese.

“Australia’s low vaccination rollout makes the economy increasingly vulnerable given the new highly contagious COVID delta-variant sweeping the world,” he said.

“Extended lockdowns could severely knock economic growth in the short-term and see the local share market materially lag its global peers.”

Bassanese has recent history on his side.

Last year, as federal and state governments first introduced restrictions in March, the S&P/ASX 200 Index (ASX: XJO) plunged more than 32% in just one month.

Similar to that time, the big four Australian banks have already pledged to assist customers distressed from the current NSW lockdown.

The measures include waiving fees or deferring loan repayments.

Commonwealth Bank of Australia (ASX: CBA) chief Matt Comyn said last week that his thoughts were with NSW customers.

“We know this lockdown will have an impact on the Sydney-based business community and we’ve been speaking to our customers to understand if they need assistance.

“We would encourage anyone who banks with us and [is] facing difficulties to get in touch with us.”

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of August 16th 2021

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Coronavirus News