Economic impact of coronavirus – comments

Commenting on a worst case scenario coronavirus, global sell-off and relentlessly weaker economies, Artur Baluszynski, Head of Research at Henderson Rowe, said: “The actual impact of the COVID-19, commonly known as the coronavirus, on the global economy is difficult to quantify and forecast as we know very little about infection rates and recovery rates inside China. This is especially the case if one assumes that the numbers coming out of China are underreported. Up until last week, the COVID-19 had been contained to mostly China and the Asian region so global markets allowed themselves to be somewhat complacent. If one looks at the history of mini-pandemics, the longstanding advice from Warren Buffet is “buy when others are fearful” which was seen by many as an almost guaranteed returns booster. However, what we know now is that the COVID-19 virus is highly contagious but not highly lethal. This is good news for patients but bad news for the global economy, as it means that the virus can survive longer and spread easier. Disruptions to the labour force combined with a major slowdown, and in some cases full scale halt to the global supply chain channels, could pose a serious threat to the Chinese economy and global stock markets. European economies such as Italy and Germany, already weakened by the ongoing US-China trade war, are unlikely to escape unscathed. The news of factory shutdowns coming out of Italy is pretty worrying. This week’s sell-off in the developed markets is a confirmation of global asset allocators adjusting their positioning to account for the worst case scenario. When it comes to pandemics, history tells us that investors shouldn’t worry in the mid to long term. However, it is highly likely that the coronavirus will translate into weaker performance for the Chinese economy and global businesses exposed to it.”