Daily Posts

It’s The End of The World (According to The Media) But Markets Feel Fine

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.

https://news.cgtn.com/news/2020-01-29/All-eyes-in-Wuhan-fast-construction-of-hospitals-on-livestream-NDYVIlFj0I/index.html

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%