Coronavirus: The Deadliest Thing to Hit the Global Markets in Recent Times
Due to popular demand, we’re bringing you an urgent analytical look at the coronavirus outbreak. Contentworks Agency specialises in financial services content marketing for the world’s top banks, brokers and fintechs.
It’s 2020. The White House still has President Trump in the Oval Office. But, China has bigger worries. A deadly epidemic has gripped the world’s second largest economy and is fast spreading to other nations. Across China, and many other countries tens of thousands of people have been infected with a deadly virus called coronavirus or Covid-19, which causes pneumonia-like symptoms. Since December 2019, the virus has affected more than 80K people and killed over 2.7K.
Image Source: https://www.bbc.com/news/world-51235105
It is not the first time that China is grappling with an epidemic. Back in 2002–03, the SARS outbreak caused severe repercussions. But back then, China was not such a huge global economy. It accounted for only 4% of the global output. In 2019, China accounted for 39% of the global economic expansion. Moreover, the world is much more connected in terms of economic activity today, as compared to 2002–03. So, the growing epidemic could trigger a massive global slowdown.
A Double Whammy for Companies Operating in or Dealing with China
The footage of deserted streets and closed shops say it all. China and the global markets are bracing themselves for a US sub-prime-crisis-like market event, if the outbreak is not contained quickly.
The immediate aftermath of the viral outbreak was a lockdown in over 14 districts in the China, including the primary affected regions of Wuhan and Hubei. Factories have been on lockdown, shops, offices and restaurants closed, travel bans have been imposed and millions of people are living under constant fear of being infected.
This has been a double whammy for global companies. From the production of cars and mobile phones to the source of global demand for German auto parts, consumer goods and machine tools, China is a big player in the business world. Companies like Apple, Starbucks and KFC are bearing the full impact.
Apple’s case is an apt example of how unforeseen events can rattle even the most established companies. Mass quarantines and severe restrictions on 780 million people have led to the global electronics giant closing its factories, corporate offices, retail stores and contact centres in China. In a rare company advisory, released on February 17, 2020, Apple reduced its revenue targets for the first quarter of 2020, citing reduced demand and prioritising health and safety of its employees.
Burberry has closed 24 of its 64 stores in Mainland China, while the other stores are operating under strict restrictions of working hours and low sales. Yum China, which operates KFC, Taco Bell and Pizza Hut in the country, has temporarily closed 30% of its restaurants. The company too has issued warnings regarding operating losses in the first quarter of 2020.
Commodity prices have declined in response to lower demand from China. For instance, the country is a huge importer of oil. The widening effect of the virus has led to reduction in demand and slump in oil prices. OPEC+ countries are considering cutting their oil output. It has cut the 2020 demand outlook by 19%, compared to the previous forecast. Countries like Australia, which export huge quantities of iron ore (almost 69%) and coal to China, will be severely impacted too.
Coronavirus Knocking on New Doors
Work disruptions, border closures and travel restrictions will squeeze multinational companies in several sectors, including infrastructure, tourism, aviation, automobiles, electronics, consumer and luxury goods.
China’s GDP growth may slow by 0.5% points in 2020, slashing at least 0.1% off global growth. The country was already reeling under the disastrous effects of the trade war with the US, suffering the slowest GDP expansion in 30 years in 2019.
The worrying aspect is that there is no cure for this virus yet, which is spreading to new countries like Italy, Iran, Egypt and South Korea. What’s worse is that the WHO doesn’t yet know how the virus is spreading.
Image Source: https://twitter.com/COVID_BRK
Traders and Investors, Time to Curb Risk Appetite
Wall Street and London have both taken massive blows due to the fear of a global pandemic. European indices and the Asian markets are on a decline as well. The list of companies whose bottom lines will be severely impacted by the virus is expected to grow. Virgin Australia, Danone and Diageo are some of the more recent additions to the list.
While currency traders may find plenty of trading opportunities in the ensuing volatility, they are likely to gravitate towards safe haven assets. While gold reached a 7-year high of over $1,660 per troy ounce on February 23, 2020, bonds have also been surging. Currencies like the Japanese Yen, Swiss Franc and the US Dollar also fall in the safe haven category.
The current scenario makes it important to stay aware of the market developments before making any trading or investment decision. More importantly, remain alert and safe.
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