Severity, consequences and implications for investors.

Topics: Coronavirus severity and global impacts

  • While infection rates are slowing inside China, COVID-19 infections are now rising outside China
  • Mortality rates are skewed heavily towards older individuals with pre-existing conditions
  • Since the virus is lethal for people with compromised lung capacity, mortality rates outside China might be lower given China’s combination of poor air quality and high smoking rates
  • Global supply chains have been impacted given reliance on Chinese production for key intermediate goods, but the impact on the US should be manageable
  • While there are reports of Chinese factories reopening, most activity indicators are still close to their post-lunar new year lows
  • Markets are now pricing in large earnings declines from the virus in 2020; the hit to Chinese earnings may be even bigger that what’s priced in, while the hit to US earnings might be smaller
  • COVID-19 raises important questions about the right risk premia for holding Chinese financial assets