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Coronavirus – The Economic Fallout

Coronavirus – The Economic Fallout

AMG - Coronavirus - Economic Fallout

The emergence of a apparently novel coronavirus in the first serious worldwide health scare of 2020 – the year of the rat – has sent international markets tumbling in contagious fashion. As a major trading partner of the Chinese, the ASX has not been spared.

One advantage the Chinese state holds over other nations is the authoritarian nature of its regime. Chinese cities can be locked down with a ruthless efficiency that would not apply to Sydney, London, or New York. The Chinese population has been conditioned to do as they are told, and Wuhan’s 11 million residents are unlikely to step out of line.

The Australian sectors most likely to be affected by any disruption and subsequent Chinese economic slowdown are travel, tourism, and consumer goods. Bearing the initial brunt are companies such as Webjet, Flight Centre, Corporate Travel, and Treasury Wines. These otherwise profitable companies are certain to feel short-term pain, but canny long-term investors are likely to either ride out the storm, or take advantage of the crisis to double down on current holdings. Based on ROI, management talent, and balance sheet, Corporate Travel (CTD.ASX) might represent the best buying opportunity of these over-sold entities.

History supports this rebound theory. The SARS Virus triggered a 9% fall in Australian stocks, but markets quickly recovered by the same amount. Investors that bought low on the SARS outbreak were rewarded for their boldness. Annual flu outbreaks regularly affect huge numbers world-wide, with over 40 million cases recorded last year alone.

While the coronavirus crisis has some way to play out, the Chinese government seems to have the will and resources to halt the contagion. International travel bans are likely to prevent large numbers of Western infections. Markets will be rocked, but solid companies with competent management teams and robust balance sheets are likely to quickly regain any ground lost. Markets will oversell, and then bounce back. Position your portfolio accordingly.


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