12 Feb Coronavirus Threatens Global Economy
As of this writing, more than 1,100 are dead and tens of thousands are infected with the deadly, novel Coronavirus. Although mainly concentrated in China, the infection is rattling global markets and negatively impacting industries like aerospace and shipping. Because China is the world’s second largest economy and work within the country has virtually come to a halt, the ripple effect has yet to be fully realized.
J. Mintzmyer, the analyst behind Value Investor’s Edge at Seeking Alpha, says this is the worst market for shipping stocks in the 10 years he’s been covering the industry. J. commented in the US News & World Report story today Coronavirus’ impact on the stock market has hurt some more than others. Beware of vulnerabilities
“The inevitable slowdown in China’s economy after the largest quarantine in human history means less activity and lower demand for goods and services. For that reason, the shipping industry has been sold off by traders and oil prices have been plunging. That said, this combination has led to some unprincipled selling, according to J. Mintzmyer, analyst of Value Investor’s Edge on Seeking Alpha.
“In the past three to four weeks, we’ve seen the market cap drop (of Euronav EURN) by $800 million, which is the level of earnings we could reasonably expect in about two average years of profits,” Mintzmyer says.
“Although the coronavirus is a threat that needs to be taken seriously, I believe that shipping stocks on average have massively overreacted to the news and that there are numerous selective buying opportunities,” Mintzmyer says.
“The biggest impact is undoubtedly the panic surrounding the ongoing Coronavirus contagion. It is still far too early to know how widespread and long-lasting the impacts will be, but we can state with certainty that China’s energy and resource consumption will plummet for February, and March is looking weak as well.”
As the Lunar New Year ended in China, the expectation was a return to business as usual. But, according to the Washington Post “in the capital Beijing, a city of 22 million people that has 352 confirmed cases of coronavirus, the streets and office buildings and stores were remarkably empty Wednesday.”
According to the Financial Times, the global economy will take a hit:
“Deutsche Bank forecasts that, due to the current coronavirus, Chinese growth will be 1.5 per cent lower in the first quarter of 2020 compared to the same period in 2019, at 4.6 per cent. Global growth is expected to be 0.5 percentage points slower. “
This is a developing story. Reference the opinion piece in The New York Times 02/16/2020:
Will the Coronavirus Cause a Recession? The world’s second-largest economy is coming to a near standstill.
Hard as it is to envision, the world’s second-largest economy is coming to a near standstill. Infections and fatalities are mounting. Many of my acquaintances and friends in China tell me they are increasingly concerned about the government’s ability to control the epidemic and its economic fallout. Big urban manufacturing and financial centers remain on at least partial lockdown, migrant laborers are unable to return to work, and factories are unable to get raw materials or ship their goods out reliably.