Chess pieces are seen in front of displayed China's and U.S. flags.

ASX slips as US-China tensions mount, amid warnings of ‘severe’ economic downturn

Australian shares have finished trading slightly lower, as ongoing economic uncertainty and flaring US-China tensions weighed on global market sentiment.

The arrival of US House of Representatives Speaker Nancy Pelosi in Taipei, despite warnings from Beijing, prompted China to launch war plans around the Taiwan Strait in protest.

The ASX 200 fell by 0.4 per cent, to close at 6,969 points, having managed to claw back most of the day’s losses.

At its lowest point on Wednesday morning, the benchmark index had failed by as much as 1.1 per cent before it recovered.

In contrast, stock markets in Japan, Hong Kong and Chinese all traded higher, as they recovered slightly from yesterday’s sell-off.

The Nikkei, Hang Seng and Shanghai Composite rose between 0.4 and 0.8 per cent today.

“My view is that financial markets generally are grossly underestimating the dire nature of the US and global economy right now,” said Clifford Bennett, the chief economist of ACY Securities.

“Manufacturing is rolling over badly around the world, and consumer and business confidence are in some cases plummeting to all-time historic lows.

“This is not an environment where consumers and businesses will continue to spend, let alone party in the manner in which they did post-COVID.

“The very reasons for that brief yet impressive spurt of economic strength, low interest rates and massive government stimulus are gone now. Evaporated. And they are not coming back.”

“Expect further severe economic retrenchment for perhaps the next 1-3 years, and it could be a very similar story for stocks.

“Investors should take note of the recent strong rally in equity markets. It may merely be the opportunity to get out, that so many around the world had hoped for.”

Aussie dollar sinks

By 4:10pm AEST, the Australian dollar was trading at 69.3 US cents, following a sharp loss of 1.5 per cent overnight.

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