Coronavirus Outbreak: The Global Economic Hit

As Ground Zero of the Coronavirus or Wuhan virus outbreak, China has taken a massive hit not only in mortality rates, but also its economy. Since the declaration of the Coronavirus as a Global Health Emergency, major corporations have shut down their China-based operations and outlets, including Apple, Ikea, Starbucks, Tesla, and Google.

As the death toll rose to 361, Chinese stocks have plummeted after an extended Lunar New Year break. Even after China’s central bank injected markets with $174 billion of liquidity, stocks were still hit by a $370 billion wipeout, almost 8% lower, the biggest drop in 5 years. The Chinese government is making every attempt to soften the blow, by cutting reverse repo rates and subsidising interest payments for firms affected by the outbreak. Analysts are optimistic due to China’s response to the outbreak and predict that the disproportionate impact to the economy is likely to be short-lived.

Meanwhile, with its 11th confirmed case of Coronavirus, the US has set up multiple defences to keep the Coronavirus at bay, including screenings at 11 airports nationwide. President Trump stated that help has been offered to China, but they’ve received no response. Beyond that, US stock markets have also fallen sharply, with the Dow falling 690 points and the S&P 500 down 1.8%. Many American companies with Chinese consumers and suppliers are also impacted, such as Levi Strauss, McDonald’s, and Starbucks, though the impact is said to be temporary and minimal. China has ordered a shutdown of Tesla’s Shanghai factory, which may also affect the supply chain for their California plant.

European markets were mostly unaffected despite concerns over Brexit and Coronavirus developments. However, European stocks have closed over 2% lower, and many European based companies such as H&M, Electrolux, Jaguar, and Land Rover have had to halt production and reconfigure their supply chains. Data compiled by the University of Southampton shows that the European city most at risk of a Coronavirus outbreak is London. But even so, as the UK government increases defences against the virus, experts claim that the outbreak is under control.

It is, however, an entirely different story in Asia. The first Coronavirus death happened in the Philippines, and Asian communities are fearful. This led to a plunge in Asian stocks, with oil at a 13-month low. Governments are looking to steady the markets, which may work as markets are now looking up, perhaps just steadying themselves after the huge drop.

All in all, with the Coronavirus spreading and no cure as of yet, we advise our investors to be wary, but also to keep in mind that markets have historically recovered swiftly after an outbreak or pandemic. In short, be alert, but do not panic.

https://www.reuters.com/article/us-china-health-business-impact-factbox/companies-feel-impact-of-coronavirus-outbreak-in-china-iduskbn1zu1lg

https://edition.cnn.com/asia/live-news/coronavirus-outbreak-02-03-20-intl-hnk/index.html

https://www.ft.com/content/11e019c2-fbdb-3c50-a7fe-d15cec8648c7

https://www.bloomberg.com/news/articles/2020-02-01/apple-shuts-stores-hong-kong-medical-strike-set-virus-update