The Coronavirus Crisis: Could it Infect the Market?

Investors shouldn’t dismiss out the impact of the Coronavirus virus, in particular, on the Chinese behemoth. That nation has quarantined 56 million of its citizens in an attempt to arrest the virus.

Today’s blog takes me down a road less traveled - the discussion of a current event and how it might impact short- and long-term market values and an investor’s response to such an event. Specifically, I want to address the effect of the Coronavirus that reared its ugly head recently in China, and its slow but steady infection of China’s trading partners.

Going Viral?

Investors shouldn’t dismiss out of hand the impact of the Coronavirus virus, in particular, on the Chinese behemoth. That nation has quarantined 56 million of its citizens in an attempt to arrest the virus. To date, investors in the United States seem to be of the mind that the American economy is less vulnerable to external shocks than the rest of the world. There’s an element of truth to that. Still, according to the Wall Street Journal’s insightful editorial staff, U. S. companies, Apple, Starbucks and other American stalwarts have temporarily closed stores in China for good reason. And Ford, Apple and Tesla have temporarily halted the production of their commodities in China.

Of note, one-sixth of Apple’s sales and close to one-half of chipmaker Qualcomm’s revenues are generated in China. And 80% of active ingredients used by drug-makers to produce finished medicines come from China. Such statistics and a random sampling of corporate activity in reaction to this virus are meaningful red flags. Unless the spread of this virus is arrested soon – and normal business activity resumes – markets across the world, including our own, will feel its impact.

Too Big to Ignore

When an economy the size of China’s – the world’s largest oil importer and a major manufacturer – faces a sizable quarantine of citizens, suffers airline service disruptions from many countries and must deal with the closure of international borders and of the aforementioned factories, financial markets there… and here… can’t help but be impacted. China’s loss of 2-3 million barrels per day of oil-related demand alone will be felt worldwide. U. S. crude oil prices have declined over 20% in the last month. Although such price decline could give a boost to motorists at the pump, the Coronavirus crisis is being less than kind to the stocks of major domestic energy companies. Middle East catbird, Saudi Arabia, is advocating a brief curtailment of OPEC production to combat declining demand, a development that would be helpful to U. S. shale producers.

It's Anybody's Guess

Will this virus have a short- or long-term market impact on the world market? That's the question of the moment. Although various flu viruses impact our country on a much greater scale annually, they are familiar viruses. Not so much the Coronavirus, thus, the greater uncertainty surrounding it.

My guess is that, due to this uncertainty – the absence of an effective Coronavirus treatment – the world’s marketplaces will experience increased volatility leaning toward bearish declines. In this country, the Centers for Disease Control and Prevention (CDC) and other federal, state and local health authorities are reacting in an expeditious and professional manner – China, not so much. The impact of the virus on that country is still unfolding… yet to be defined. But it seems to finally have grabbed their government’s belated attention. Past outbreaks such as SARS (severe acute respiratory syndrome) caused stocks to drop initially only to bounce back once the rate of new infections slowed. To date, cases of this new virus in China have doubled the number afflicted by the SARS virus two decades ago – a troubling trend.

Take Two Aspirin...

Opportunistic investors holding highly-diversified, well-balanced portfolios can weather this significant market uncertainty by judicious buying in a declining market should it occur, but the word of the day is patience… patience to await the opportunities of a soft market and to outlast it if and when it occurs. Despite our country’s own low risk for infection, China’s outbreak will continue to reduce its energy consumption and disrupt the world’s second-largest economy for some time to come.

To wise investors, steady as she goes.