The ASX is down in a big way today.
It was hit hard upon the commencement of trading this morning, after Wall Street had its biggest stock drop in 2019 last night.
The Dow Jones finished 2.9% lower, the S&P was down 3% and the tech-heavy NASDAQ also had a 2.5% drop.
The pullback was no doubt a reaction to Trump slapping a 10% tariff on US$300 billion worth of Chinese exports — effective 1 September — which seems to have put the global economy in a state of uncertainty.
Unsurprisingly, the ASX proved no exception to the economic turmoil, with the S&P/ASX 200 down 174 points, or 2.6%, just minutes after market open. The tech sector is copping it the hardest, following the NASDAQ’s fall with a 4.93% drop during the morning’s trading. Big names like Afterpay Touch Group Ltd [ASX:APT] and Appen Ltd [ASX:APX] are down 6.72% and 5.9% respectively at time of writing.
ASX is down on trade war but gold price up and gold stocks escape carnage
It seems tension between the US and China won’t ease for quite some time, with tit for tat trade plays expecting to further increase volatility in the global markets.
At the beginning of this week, US treasury secretary Steven Mnuchin accused China of being a ‘currency manipulator’ after the yuan was ‘allowed’ to weaken below the seven-to-one US dollar level for the first time since the GFC.
China’s central bank insists the depreciation was a result of ‘unilateralist and trade-protectionist measure and the expectations for tariffs against China’.
Mnuchin and of course Trump believe the currency fall was China’s attempt ‘to gain an unfair competitive advantage in international trade’. As such, the US are now requesting the International Monetary Fund take action to ‘eliminate’ the advantage.
But while it may look like the trade war is a broad based threat to equities, it’s not all bad news for the ASX during this trade war. In fact, we’ve found three opportunities that deserve greater attention. See what they are in this free report.
Indeed, one clear winner during this waning investor confidence is gold, reaching a price of US$1471 per ounce this morning. Mining Leaders like St Barbara Ltd [ASX:SBM] and Newcrest Mining Ltd [ASX:NCM] are both in the green today.
Where does the ASX go from here?
With no clear end to this trade war in sight, gold’s form could continue, with the precious metal potentially hitting new multi-year highs.
What’s more, the weakening Aussie dollar — hitting as low as 67 US cents this morning — could mean ASX gold miners with local operations could get an extra boost in the market.
For a more in-depth breakdown of the factors pushing the value of gold, and why it could be a valuable addition to your portfolio, you can read Greg Canavan’s analysis in this free report.
Ultimately, it’s up to you as to how you play this volatility.
As reported by The Sydney Morning Herald, Global Cross Asset Specialist for Fidelity International, Anthony Doyle, believes days of volatility splits the market into ‘fast money’ and ‘real money’.
‘The ‘fast money’ investors hit a pre-determined sell price, realise the loss, and sell out.
‘Real money’ investors, on average, will sit on the sidelines, reassess their portfolios, and determine whether it is then appropriate to make any adjustments if their fundamental thesis has changed materially.”
“Volatility is not a bad thing, as it can produce excellent opportunities to enter into positions at attractive valuations“’.
Doyle is making a good point here about the difference between trading and investing in this kind of market. Some investors today could have hit their stop-loss on certain trades, but not know what to do with what is left. The key is plucking out new sectors.
Finally, if you’ve got money in US blue chips, one of our editors, Murray Dawes explains why the S&P 500 is due for a correction in this video:
For Money Morning