Coronavirus: Investors Brace for an Economic Blow
Emad Mostaque, Founder / CEO, Symmitree
Feb 4, 2020 Wealthy investors and family offices may have to brace themselves for a severe correction in global trade, travel and consumption as China’s Coronavirus outbreak reaches epidemic proportions.
The World Health Organization recently classified the virus as a global health emergency, as the number of verified inflections crossed 11,374 and the number of fatalities crossed 259 worldwide. Several countries, including Italy and the United States, have issued travel warnings against going to China, while Russia has effectively shut its southern border with the nation.
Meanwhile, China has implemented an unprecedented shutdown of several cities and industrial hubs. Google, Tesla and Disney have temporarily suspended operations in the country, according to reports by the BBC and the Verge. Economists now expect this to have a chilling effect on China’s industrial production and consumption, which could have a knock-on effect on global financial markets. China may have already lost two percentage points of GDP growth and $60 billion in the current quarter as a direct result of the outbreak, according to CNN. These figures are starting to worry foriegn investors.
“Between meetings Davos last week and with epidemiologist friends this week I now have enough information on the coronarvirus outbreak to be seriously concerned,” said London-based Emad Mostaque, the CEO of fintech startup Symmitree and a former hedge fund investment officer.
Mostaque believes the epidemic’s impact could be similar to the economic fallout from the 2003 outbreak of SARS (Severe Acute Respiratory Syndrome). However, Coronavirus has already infected far more people than SARS and the economic impact could be much more severe, according to an estimate by Bloomberg.
China’s contribution to global GDP has jumped from 4% to 17% since the SARS epidemic, which means a lockdown in China will have a broader impact on global investors this time. Meanwhile, the global economy has become more interdependent and stock market valuations are at an all-time high which makes ‘black swan’ events like a viral outbreak more risky for asset prices, according to a research note by Seema Shah, chief strategist at Principal Global Investors,.
“This fits into the category of known unknown,” said Mostaque, when asked if institutional investors could mitigate the risks. “Bonds would be the asset of choice along with gold and simply cash for optionality.”