The coronavirus has already captured the world’s attention, sending markets off its record high and panicking people all over the world. Developments sped up during the week, as Wuhan, the – alleged – centrum of the epidemic (home to over 11 million people) was quarantined with a number of other Chinese cities to stop the spread of the coronavirus. The virus has already spread overseas, including to Hong Kong, Macau, Singapore, Thailand, the US, Canada, UAE etc.
The number of confirmed cases worldwide has soared past 9,700 in a matter of days. However, as troubling as the outbreak is, a sense of perspective is needed. Sadly, 213 people have already died from the new strain of flu, mostly the old and the infirm, the typical victims of flu. This 3% case mortality rate compares with the 34% rate of Middle East Respiratory Syndrome (MERS-CoV), which erupted in 2012, and the 10% rate of the 2002 Severe Acute Respiratory Syndrome (SARS) epidemic. Some reports have even compared the Wuhan virus’ 3% mortality rate to that the Spanish Flu of 1918 (the original H1N1), which infected about 500 million and killed somewhere between 50 million and 100 million, mostly those aged between 20 and 40. In reality, the Spanish Flu was much deadlier, it killed somewhere between 10 and 20% of those it infected, or 3% to 6% of the global population.
The key to the market and economic effects is whether the virus can be contained quickly. Given the more proactive response from the Chinese government compared with previous outbreaks, including a large-scale quarantining in a number of affected cities, our fund managers assesses the short to medium-term impacts of economic fallout would not be too different from the previous episodes.
Fund managers expect the coronavirus, same as previous outbreaks to have a transitory impact on economic activity, especially on cyclical and discretionary sectors in China, recognising that the virus can impact asset prices and valuations disproportionately and thus create market dislocations for an uncertain period of time. However, same as the SARS event in 2002-2003, this can provide significant opportunities as well for long term investors. Fund managers aim to tactically reduce allocation in affected sectors like Chinese real estate, tourism, hotel & leisure, insurance and discretionary products whilst maintaining position in producers of staple goods like snacks and beverages where demand should be relatively stable. Opportunities arise as well in biotech, healthcare sector and related services as Pharma/Healthcare giants scramble to produce commercial diagnostic test, health kits and vaccine for the Wuhan coronavirus.
In conclusion, our fund managers think the coronavirus is not a major catalyst for overhauling portfolios, but proactively adjust accordingly with a more defensive portfolio in China and take advantage of the opportunities to get into stocks benefitting from the outbreak. The unfortunate event also presents opportunity for regular saving plan holders to buy units at a lower price and add more value in their portfolio as the markets correct in due time.
At this early stage of the outbreak, situations can also evolve at a fast rate and we are closely monitoring the developments and continuously in contact with fund managers. Astra is ready to act and adjust client portfolio allocations should it be required.