By now the number of coronavirus cases in China is approaching 70,000. Reportedly, about 400 million people are under some form of lock-down, if not outright quarantine.
- Bob Farrell’s 10 Rules for Investing in 2020
- DoubleLine Round Table Panel Discussion
- Jeff Gundlach on the Next Economic Collapse
As a result, activity in China has ground to a halt. People are stuck at home, streets are empty, travel is limited. I wouldn’t be surprised to see negative GDP figures for Q1 coming out of China. That’s huge, given trend growth is closer to 6%. This is especially worrisome for the Chinese government trying to maintain order and control throughout the crisis.
Preliminary data is suggesting I’m right about the severity of the slowdown. The four charts below show just how dramatically activity – such as travel – in China has slowed. When activity slows, commerce slows.
These charts come from Mark Williams, Chief Asia Economist, Capital Economics.
Average Road Congestion across 100 Cities in China
Daily Passenger Traffic
Coal Consumption at Power Plants
Daily Property Sales in 30 Major Cities (Thousand Units)
So how does this affect your investments and the economy outside of China? Common sense says there will be knock-on implications. However, the markets continue to tease new all-time highs.
To be frank, the future is opaque. If there is a market and economic impact, it is probably transitory. Possibly, markets are already looking through the potential short-term impacts of the coronavirus. Or maybe markets are being complacent and totally underestimating the risks. Hard to say which. Regardless, it seems reasonable to reduce exposure to risk assets if your time horizon is under 2 years.