The Coronavirus & China’s Economy

THE FACTS

The coronavirus has been making news headlines not only for its severity and rapid spread, but also for triggering volatility in global stock markets.  While 2020 gains may be fluctuating at the moment, China’s prompt and internationally coordinated response to the coronavirus may offer some reassurance that the economic (and human!) effects can be limited.

The coronavirus has a lot in common with the SARS virus that temporarily jolted China’s economy in 2003.   SARS knocked 2 percentage points off China’s GDP growth in the second quarter of 2003, with transportation, tourism, and hospitality hit especially hard. Those sectors and retail will likely be among the hardest hit again.

MERS was the most recent coronavirus to spook investors in 2012.  Similar to SARS, the market took a hit, but within months it rebounded and surpassed its prior levels.  The lesson – reacting to market changes may be riskier than the event that caused the market shift in the first place.

WHAT’S DIFFERENT THIS TIME?

While the situation is likely to get worse before it gets better, experts anticipate acute but short-lived harm to China’s growth.  The main effect on China’s economic growth will likely be one of sentiment. The good news is that the Chinese government has taken serious actions quickly.  While the coronavirus threatens growth in the near term, there’s the potential for a rebound in the second half of the year amid anticipated government stimulus.  The spillover to the rest of the world could be limited given a prompt and better-coordinated international public health response this time.

WHAT DOES THIS MEAN FOR YOUR PORTFOLIO?

As usual, we recommend doing nothing, other than maybe ignoring the financial news.  If you’ve taken the time to craft a portfolio specific to your goals, timeline, and risk tolerance, then you are already set!

As always if you have any questions please don’t hesitate to reach out to us.