Invest
Is the coronavirus a black swan like no other?
A coronavirus pandemic would be even more of a “black swan” than the global financial crisis as policymakers may be limited regarding their ability to remedy or offset the effects, a credit agency has suggested.
Is the coronavirus a black swan like no other?
A coronavirus pandemic would be even more of a “black swan” than the global financial crisis as policymakers may be limited regarding their ability to remedy or offset the effects, a credit agency has suggested.
According to Moody’s Analytics, industrial metal price index has plunged in response to the possible spread of the virus.
Moody’s noted there is a strong correlation between world growth and metal prices, with prices holding up better during the worse month of the trade war than since the virus outbreak.
“As world economic growth slowed from 2018’s 3.6 per cent to 2019’s prospective 2.9 per cent, the annual percent change of the industrial metals price index switched direction from 2018’s 7.0 per cent increase to 2019’s 6.9 per cent contraction,” Moody’s said.
The QIC noted that the main economic impact the coronavirus will have is through lower retail spending as consumers stay at home and avoid shops, restaurants, entertainment venues and hotels, although online shopping might mitigate the impact.
The outbreak of SARS in 2003 provides some guide to the potential economic impact. Chinese real GDP growth fell by around 1.5 per cent to 2 per cent in Q2 2003 due to SARS, with retail sales growth temporarily falling by around 5 per cent.
However, Chinese growth quickly rebounded in subsequent quarters. Overall, growth in 2003 was likely around ¼ - ½ ppt lower in China due to SARS (although this is difficult to disentangle precisely from Iraq war and other impacts), the QIC also stated.
BetaShares chief economist David Bassanese believes investors are right to be cautious, given all the uncertainty around the virus.
“In terms of economic impact, the virus outbreak will especially hurt retail spending and tourism in the Asian region, especially in China. As a result, it should particularly hurt Asian equity markets and consumer and tourism-related stocks especially,” Mr Bassanese said.
Domestically, Mr Bassanese suggested the coronavirus could be devastating to the Australian economy due to the impact it will have on the tourism sector.
“The negative impact on Australia is especially ill timed, coming in the wake of recent bushfires and a substantial slowdown in private spending.”
“During the SARS outbreak in 2003, the number of monthly tourists from China declined by 80 per cent in the three months from February to May.”
“Today, tourism accounts for around 3 per cent of GDP, of which China accounts for around 20 per cent (or 0.6 per cent of GDP). So, broad calculations suggest a halving of Chinese tourism number over a quarter could directly knock off 0.3 per cent from quarterly GDP growth. We can add to that a negative impact on tourism from the recent bushfires,” Mr Bassanese explained.
“Of course, assuming the virus is contained within only a few months (as was the case with SARS in 2003), the negative impact on local economic growth should be short-lived, with tourism likely to rebound by the second half of the year.”
“But Australia faces difficult growth challenges over the next few months, which suggests the RBA will likely be forced to cut interest rates further, although probably not as early as next week,” Mr Bassanese concluded.
RELATED ARTICLES
About the author
About the author
Stock market
Portfolio reviews as an operating discipline: turning volatility into a competitive edge
In a higher-rate, higher-volatility world, portfolio reviews are no longer an annual hygiene task; they’re a core operating rhythm that protects cash flow, unlocks tax alpha, and sharpens risk ...Read more
Stock market
Fee war on the ASX: Global X’s A300 turns up the heat on core Aussie equity ETFs
Global X has lobbed a 0.04% management fee into Australia’s core equity sandbox, launching the Australia 300 ETF (A300) to take on entrenched giants. Read more
Stock market
Challenger IM shakes up the ASX with private credit note and a side of risk
Challenger Investment Management has taken private credit mainstream with an ASX-listed note structure—LiFTs—that secured roughly $100 million in cornerstone commitments within a day of launch. Read more
Stock market
International stocks: Diversifying your portfolio beyond Australia
In an increasingly globalized market, Australian investors have the opportunity to enhance their investment portfolio by incorporating international stocks. Diversifying your investments globally can ...Read more
Stock market
Stock market rally likely to continue regardless of Fed minutes tone, says deVere CEO
The bull run that has propelled Wall Street's major indexes to record highs this month is expected to continue regardless of the tone of the upcoming Federal Reserve minutes, according to Nigel Green, ...Read more
Stock market
US stock rally driven more by valuation growth than earnings, leaving tech names vulnerable: Innova
The strong gains in US stocks over the past year, particularly in the technology sector, have been driven more by expanding valuations than underlying earnings growth, leaving them exposed to a ...Read more
Stock market
Sun Silver to make its ASX debut with a $13 million IPO
Sun Silver Limited (proposed ASX Code: "SS1") has announced the opening of its Initial Public Offering (IPO) today, aiming to raise a minimum of $10 million and a maximum of $13 million (before costs)Read more
Stock market
Nasdaq hits record high, underscores the value of tech in investment portfolios
The Nasdaq Composite's surge to an all-time high last Friday highlights the importance of incorporating technology into investment strategies. Read more
Stock market
Portfolio reviews as an operating discipline: turning volatility into a competitive edge
In a higher-rate, higher-volatility world, portfolio reviews are no longer an annual hygiene task; they’re a core operating rhythm that protects cash flow, unlocks tax alpha, and sharpens risk ...Read more
Stock market
Fee war on the ASX: Global X’s A300 turns up the heat on core Aussie equity ETFs
Global X has lobbed a 0.04% management fee into Australia’s core equity sandbox, launching the Australia 300 ETF (A300) to take on entrenched giants. Read more
Stock market
Challenger IM shakes up the ASX with private credit note and a side of risk
Challenger Investment Management has taken private credit mainstream with an ASX-listed note structure—LiFTs—that secured roughly $100 million in cornerstone commitments within a day of launch. Read more
Stock market
International stocks: Diversifying your portfolio beyond Australia
In an increasingly globalized market, Australian investors have the opportunity to enhance their investment portfolio by incorporating international stocks. Diversifying your investments globally can ...Read more
Stock market
Stock market rally likely to continue regardless of Fed minutes tone, says deVere CEO
The bull run that has propelled Wall Street's major indexes to record highs this month is expected to continue regardless of the tone of the upcoming Federal Reserve minutes, according to Nigel Green, ...Read more
Stock market
US stock rally driven more by valuation growth than earnings, leaving tech names vulnerable: Innova
The strong gains in US stocks over the past year, particularly in the technology sector, have been driven more by expanding valuations than underlying earnings growth, leaving them exposed to a ...Read more
Stock market
Sun Silver to make its ASX debut with a $13 million IPO
Sun Silver Limited (proposed ASX Code: "SS1") has announced the opening of its Initial Public Offering (IPO) today, aiming to raise a minimum of $10 million and a maximum of $13 million (before costs)Read more
Stock market
Nasdaq hits record high, underscores the value of tech in investment portfolios
The Nasdaq Composite's surge to an all-time high last Friday highlights the importance of incorporating technology into investment strategies. Read more
