Coronavirus: How Could It Affect Your Money?

25 February 2020
CoV or Coronavirus, as it’s more widely known, has so far infected more than 81,000 people worldwide and claimed the lives of over 2800 globally. The virus which has now spread to over 25 countries has officially been declared as a global health emergency by the World Health Organization and has sent alarm bells ringing across global capital markets.

The substantial human impact coronavirus has already implemented is expected to rise and has the potential to be tragic. The economic impact will also be significant if its progress cannot be stopped.

Businesses across China have already been affected with closures to prevent infection. The country has been forced to shut down factories and quarantine workers, interruptions to the supply chain are yet to be felt by Europe and the US however they are to be expected. On a macro level, economic consequences of such an outbreak are profound. China is the biggest exporter and second biggest importer of merchandise, playing a crucial role in the global supply and demand value chain. Long term disruption caused by this outbreak could cause substantial damage to the economic growth of the country. Citi has since downgraded China’s full year growth forecast from 5.8% to 5.5%.

This said, analysts say that the stock markets will not see any long-term damage. Other major infections such as Ebola, SARS, Ziki and swine flu also caused similar growth forecast changes however quickly bounced back after around 6 months.

Which sector will face the biggest disruption?

The impact of coronavirus will be felt across multiple industries especially those dependent on the supply of inputs from China, the most popular being electronic components, non-electrical machinery and machine tools, metal products, organic chemicals and pharmaceutical ingredients.

Prices of crude oil are also set to decrease due to concerns over a lower demand.

Another industry who will be fit hard by the outbreak is tourism. According to the Ministry of Tourism, foreign tourist arrivals from China accounted for around 3% of 10.9million in 2019, which has been increase at an annual rate of 11.4% since 2011. With travel restrictions for Chinese nationals, the influx of its tourists will be temporarily halted putting pressure on the industry.

The inevitable slow down of construction activity and consumption in China may keep the demand for base metals such as steel, aluminium and copper low, putting a downward pressure on global metal prices, which will spill over into the domestic market. Metal prices have already plummeted in the global market and the Chinese supply-demand factors decrease has kept global inventories of metal products high, which is likely to weigh down on prices of steel, aluminium and copper.

What will benefit?

Falling crude prices will benefit manufacturers of paints and plastics with shares in major players likely to benefit. China’s domestic chemical makers could also benefit.

Global buyers, such as the UK and USA are turning to other countries such as India for exporting of goods, seeking to replace China as a supplier.
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