Displaying items by tag: China
It is often hard to get a handle on how the Chinese economy is doing. The country’s government controls information very tightly, which makes the whole nation a black box. However, with coronavirus fears in full flourish there is some additional insight available, and it is worrying. Factories across the country have been shut as part of an effort to contain the disease, and even tech workers are working remotely. All over the country, from Beijing to Shanghai, to industrial provinces, workers are not reporting to factories (following government advice to stay home). Even today, as some parts of the country were supposed to return to work, many are not.
FINSUM: The Chinese economy seems to have completely stopped. It is hard to imagine there will not be a significant recession this quarter in China, which could reverberate all over the world.
While the stock market had a little blip because of coronavirus, prices are already back to all-time highs. That might be very misguided. The market appears to be discounting the huge effects coronavirus is having on the Chinese economy, which has completely ground to a halt according to some reports. Investors have been complacent about the risk because when SARS happened in 2003, there was a strong v-shaped recovery. However, at that point the Chinese economy was growing at 11%, not at the barely 6% it is today. The global economy itself is only a few tenths of a percentage point off what most would consider a downturn, so things are fragile to begin with. Speaking about the market’s bullish outlook, Stephen Roach, former chief economist and chairman of Morgan Stanley Asia says “This is a market where if you declared it was World War III, they would rally on reconstruction. It’s pretty ludicrous the optimism that is built in”.
FINSUM: If that quote does not hit the nail on the head, we don’t know what does.
Coronavirus has made a reasonable impact on the market. Things fell a bit but are back where they started. However, instead of focusing on the big esoteric risk of the virus, it might be more productive to think about the specific sectors where the virus is gong to have an impact no matter what. Take for instance luxury retail, which is reportedly getting walloped by the virus. Why you might ask? Chinese tourists have vanished from the fancy shops of New York, Paris, and Milan, which means top luxury brands aren’t selling as many glitzy handbags.
FINSUM: There are going to be many of these niche areas that will be hurt by the virus, but don’t immediately come to mind when you consider its impact.
The new SARS/Coronavirus that has broken out in China has been serious enough that it has actually spooked markets. 17 people have already died and 600 more have the pathogen, which is as yet poorly understood. Now the city where it was first found, Wuhan, has been quarantined. However, the quarantine has been greatly undermined by the fact that it was instituted after the country’s biggest annual migration—the Lunar New Year, when Chinese go home to visit family. One the big worries is that the virus seems to have “superspreading” characteristics, or the kind of virus that spreads much more rapidly from person to person than normal.
FINSUM: This is a pretty scary bug, and the US already had its first confirmed case (a man in Seattle that had come directly from Wuhan).
It has been more than 18 months of brinksmanship in the making, but the US and China are apparently set to seal a phase one trade deal. The deal will be signed at 11:30 am in the White House. The deal leaves out a lot of the most difficult and contentious issues between the countries, but is a sign that things are improving. The FT summarizes the substance of the deal this way, saying “It commits China to making $200bn in additional purchases of US goods, including farm products, and other pledges on currency and intellectual property, in exchange for a small rollback in some tariffs and an indefinite hold on further punitive measures out of Washington”.
FINSUM: The key thing here is that both countries want this work out and this deal is a step in the right direction. We find this quite positive in the grand scheme of things.