The ASX is looking at losses in the tens of billions of dollars when trading resumes later today – but that may only be the start if the Chinese stockmarket tanks as expected when trading resumes after the week-long New Year holiday and escalation of the coronavirus crisis.
The Aussie dollar hit a decade low on Friday night in offshore trading as shares tumbled and oil, copper and iron ore lost ground. That’s expected to continue today and into the rest of the week.
The ASX saw a small gain on Friday and a 1% loss for the week after the ASX 200 rose 8.8 points, or 0.1%, to 7017.2 points.
But that small gain didn’t last and as offshore markets slumped on Friday afternoon and evening, the ASX share price futures index plunged as well, losing 119 points overnight Friday in one of the biggest falls in a single trading session for while.
That was after Wall Street plunged with the Dow and S&P 500 index recording their biggest one day falls since last August.
Despite last week’s slip, the ASX 200 still ended up 4.86% in January, recording the best start to a year since 2012. Had the index closed marginally higher, it would have been the strongest January lift since 1994.
The remarkable performance came despite stiffening headwinds for both the economy and corporate earnings and the looming impact from the fires and the coronavirus crisis.
The ASX’s January performance was much stronger than Wall Street and markets in Asia. That won’t last from today with a big sell-off in prospect.
The driver is easy to see – fears that the Chinese coronavirus epidemic was spreading and intensifying and would slow economic growth in China and globally.
A death toll closing in on 300, over 12,000 cases worldwide and continuing to grow but only 130 cases have been reported outside China in more than a dozen countries, including Australia.
Apple has closed its stores in China for this week, John Deere, the US farm and construction machinery maker has also closed its factories, airlines around the world have cut or stopped flights into and out of China, the US and Australia have imposed temporary bans on Chinese visitors, Russia is evacuating its citizens and imposing a temporary halt to visa-free travel between the two countries, Australia will airlift citizens stuck in Wuhan out of the country; The US has reported its 8th case of the virus and also reported its first case of human to human transmission.
Australia is one of those economies in the center of the storm because of our exposure to China’s economy and its strong demand for our commodity exports, as well as education and travel.
Those fears explain why the currency fell under 67 US cents to end a losing week at 66.92 US cents – the lowest close for a week in a decade.
Now local investors will have to watch and wait for the Chinese markets to open around midday – noon Sydney time – to assess how damaged sentiment is.
Analysts reckon there will be big initial falls as the markets catch up with the falls in other markets since the virus outbreak worsened dramatically on the even of the lunar New Year break 10 days ago (the holiday was extended by three days for markets and by another 10 days for many businesses, especially in the quarantined areas of the country.
Iron ore markets fell 8% in a couple of days trading last week (as a guide), Hong Kong shed almost 6% in a shortened week: Tokyo’s Nikkei rose on Friday but still lost more than 2% as well.
That was after the Dow fell 603.41 points, or 2.09%, to 28,256.03, the S&P 500 lost 58.14 points, or 1.77%, to 3,225.52 and the Nasdaq Composite dropped 148.00 points, or 1.59%, to 9,150.94.
For the week, the Dow fell 2.5%, the S&P lost 2.1% and the Nasdaq declined 1.8%. Both the Dow and S&P 500 had their worst weekly performances since early August.
For the month, the Dow lost 1%, the S&P slipped 0.2% and the Nasdaq rose 2%. After all three benchmark indexes saw record highs earlier this month, for the year to date the Dow is now down 0.99% and the S&P 500 is down 0.16%, while the technology-heavy Nasdaq index is still up 1.99%.
Contrast that to the ASX 200 which, despite last week’s weakness, was up 4.86% for the year to date (January).
It may have been outperformance globally, but those gains won’t last long once the selling starts today and then Chinese markets re-open.
