It’s The End of The World (According to The Media) But Markets Feel Fine
2 Min. Read Time
Key News
Asian equity markets were a sea of green as human civilization’s demise may have been greatly exaggerated. 1/3 of S&P 500 stocks report earnings this week, which I believe will shift the narrative away from coronavirus. China has reported 6,000 infected with coronavirus and 132 deaths. Hong Kong reopened following Friday’s half-day session and having been closed Monday/Tuesday with a thud off -3%, though our brokers noted the index stayed above the 27k support level. ETFs with Hong Kong exposure had priced in a fall of 4%. The most interesting article I noticed was about a flight from Osaka to Wuhan which has been cancelled for a week. Flight HO1340 took off from Kansai last night with a volunteer crew because 94 passengers wanted to return to their home in Wuhan. Mainland media showed Premier Li in Wuhan, which I found interesting as well. It is very difficult to say where this goes and the human toll is tragic. A severe economic impact is very unlikely. However, we have a case study by looking at SARS. Let’s take a look!
- SARS had a very minor effect on China’s GDP. Quarterly GDP growth was 11.1% in 1Q03, 9.1% in 2Q03, 10% in 3Q03, and 10% in 4Q03.
- Tourism (airlines, hotel, restaurants) and transportation stocks took the brunt of the financial impact.
- Retail sales growth slowed in April, May and June 2003 but rebounded very shortly thereafter.
In November and December 2002, the Shanghai Composite declined 13%, but rebounded shortly thereafter. I would suspect that the outbreak is apt to get worse before it gets better. The mortality rate is below SARS with elderly with pre-existing conditions being more susceptible. Smoking by China’s elderly population likely exacerbates the coronavirus’ effect on the lungs. Despite the tragic human toll, it seems that a prolonged economic effect at a macro level is unlikely. However, we may want to avoid publicly traded airlines, hotels and restaurants which will be hurt by the lack of tourism.
H-Share Update
The Hang Seng gapped lower at the open at the day’s low of -3.03%/-848 index points. The index closed at -2.82%/-789 index points at 27,160 as volume surged +162% from last Friday’s low volume/pre-holiday half day. Volume was actually less than last Tuesday but above the 1-year average. Breadth was awful laying a goose egg on advancers with 50 decliners led lower by China Construction Bank -3.73%/-75 index points, AIA -2.65%/-71 index points. HSBC -2.04%-53 index points. Tencent was the “best” performer off -0.67%/-20.5 index points while Hang Lung Properties was off -6.67%/-6.8 index points. Chinese companies underperformed Hong Kong companies -3.26% versus -2.86% using the HS China Enterprise and HS HK 35 Indices proxies. The Chinese companies listed in Hong Kong within the MSCI China All Shares Index were off -2.8% with healthcare -0.92%, Tencent holding up communication -1.16%, staples -2.34%, utilities -3.02%, tech -3.37%, financials -3.62%, discretionary -3.66%, industrials -3.75%, materials -3.84%, energy -3.96%, and real estate 4.32%. Southbound Connect remains closed.
According to a Mainland media source 25mm people have watched the live streaming of the construction site where a 2,000-bed hospital is being built in Wuhan. I couldn’t find the actual live viewing, but below is a link to an article showing the rapid construction taking place.
LMVH reported strong earnings. I haven’t had time to dive in but will report back manana.
Last Night's Prices & Yields
---China’s FX Market Has Been Closed Since last Friday Until Next Monday--
CNY/USD 6.9426 versus 6.9328
CNY/EUR 7.6434 versus 7.6925
---China’s Bond Market Has Been Closed Since last Friday Until Next Monday--
---China’s Bond Market Has Been Closed Since last Friday Until Next Monday--
Commodities were lower on the Shanghai & Dalian Exchanges with Dr. Copper -0.66%
