A Twitter poll conducted by Citywire Asia found that 48.6% of participants think the Wuhan virus outbreak will have severe, long-term impact on global markets.
Forty-one percent felt the impact would be severe but short-term, while 11% leaned towards mild and short-lived. 'Mild, long-term' did not recieve a single vote.
Comparing the latest coronavirus outbreak to its closest predecessor, 2003’s SARS pandemic was responsible for around $33bn or 0.1% of global GDP at the time.
The 2003 strain of virus also originated from China. This time around, most economists are projecting the coronavirus to shave at least 1 point of growth in China.
This coincides at a time where the world’s second largest economy is reaching a tipping point, having recorded its lowest GDP growth last year in three decades.
Most analysts are downgrading their China growth forecast in 2020 on the back of the virus.
‘On the assumption that the virus will be under control by end-March, we are lowering our real GDP forecast for China in 2020 to 5.4% from 5.9%,’ said Agathe Demarais, global forecasting director at the Economist Intelligence Unit.
Furthermore, the EIU believes a vaccine will take a year to develop, said Imogen Page-Jarrett, a research analyst.
Experts think otherwise
Beijing’s economic strength could be the game-changer 17 years later. The sixth largest economy in the world has grown to become the second largest.
In fact, SARS affected at least 15% of China’s GDP at the time but Hubei only accounts for 4.5%.
The initial panic sell-off by investors also seems to have been curbed by stimulus actions from the People’s Bank of China for now at least.
Even in the event of a longer-term outbreak, the Chinese government is likely to provide additional support, said Margaret Weir, portfolio manager at Eastspring.
The PBoC has already injected RMB 1.7tn into its markets through a reverse repo scheme across Monday and Tuesday, increasing liquidity and cutting interest rates.
‘Markets have rebounded from their initial correction, which suggests that the damage will largely be temporary,’ said Chauwei Yak, CEO at GAO Capital.
Pointing to the post-outbreak period in 2003, Weir said the trajectory of growth resumes once the crisis has past.
‘In other words, recovery will continue but it may be delayed,’ she added.
Ernest Yeung, portfolio manager at T. Rowe Price, sees the situation normalising on a six-month view. Pointing to sectors like industrials, energy, commodities and even the Macau casinos as interesting risk-reward opportunities.
The unprecedented lockdown of Hubei, a province of about 60m people has also led to some companies benefitting.
In the short to medium term, these include online gaming and food delivery.
Valuations in China and Hong Kong have also been relatively low compared to the global market average before the outbreak, Martin W. Hennecke, Asia investment director at St James’s Place pointed out.
This implies that rebound potential could materialise once the pandemic slows down, he said.