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11022020_Coronoavirus-Cover
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What might be the economic impact of the coronavirus?

The coronavirus that originated in China recently has had a devastating human impact. From an economic perspective, this article explores some high-level numbers that might assist investors in grappling with the economic impact of the coronavirus.

– Andrew Macken

 

The coronavirus that originated in China recently has had a devastating human impact. It is unclear how much more widespread the infections and deaths will become. We can only hope that the Chinese government’s significant efforts to contain the virus will prove successful.

From an economic perspective, there are some high-level numbers that might assist investors in grappling with the economic impact of the coronavirus. Let’s start with Hubei province. This is the epicentre of the virus with around 20,000 cases confirmed at the time of writing. It is also home to the city of Wuhan – with a population of more than 11 million – which is in complete lock-down. Hubei accounts for around 5% of Chinese GDP.

There are then another seven provinces that have collectively confirmed around 5,000 cases of the coronavirus – with cases growing by the day. These seven provinces account for around 34% of Chinese GDP. Many believe these eight provinces, accounting for nearly 40% of Chinese GDP or nearly 4x the entire GDP of Australia, could well remained closed for another week, with Hubei remaining closed until the end of the month.

This would most likely be enough to push the Chinese economy into a Q1 recession. Furthermore, these affected provinces are critical elements to many global supply chains. Extended closures could affect such global industries as: mobile phones, apparel and footwear and furniture.

While these disruptions will likely be temporary, the Q1 effect could be significant. And there is a possible scenario, though lower probability, in which the coronavirus is worse than expected. And under this scenario, the economic impact, both in China and around the world, would also be significantly worse than expected.

In our global portfolios, we substantially cut Chinese earnings exposure from our portfolios in January. We fully expect this reduction in exposure to be temporary and will look to reload our positions when we have confidence the coronavirus is contained. We prefer to reduce the risk to our portfolios in this way, rather than to simply hold on and hope for the best. Though we are also hoping for the best.

 

Andrew Macken is the Chief Investment Officer of Montaka Global Investments.

To learn more about Montaka, please call +612 7202 0100.

Our Montaka Active Extension strategy strives for maximised return over the long-term. Owning the Montaka long portfolio typically scaled up to approximately 130 percent - and the Montaka short portfolio typically scaled down to approximately 30 percent – this strategy results in a net market exposure of approximately 100 percent most of the time.

Our Montaka variable net strategy strives for significant downside protection – but with minimal upside reduction. Focused on owning the world’s great and growing businesses when they are undervalued, while managing a portfolio of short positions in businesses that are deteriorating, misperceived, and overvalued, this strategy is our flagship long-short

Our Montgomery Global strategy strives to act as a core, high conviction, global portfolio holding. Consistent with the long portfolios in our Montaka strategies, this offering is focused on owning the world’s high quality, undervalued businesses – and cash when appropriate – to outperform its benchmark. Branded as “Montgomery Global” in Australia to reflect a key.

Our
Strategies

Our Strategies

Our Montaka Active Extension strategy strives for maximised return over the long-term. Owning the Montaka long portfolio typically scaled up to approximately 130 percent - and the Montaka short portfolio typically scaled down to approximately 30 percent – this strategy results in a net market exposure of approximately 100 percent most of the time.

Our Montaka variable net strategy strives for significant downside protection – but with minimal upside reduction. Focused on owning the world’s great and growing businesses when they are undervalued, while managing a portfolio of short positions in businesses that are deteriorating, misperceived, and overvalued, this strategy is our flagship long-short

Our Montgomery Global strategy strives to act as a core, high conviction, global portfolio holding. Consistent with the long portfolios in our Montaka strategies, this offering is focused on owning the world’s high quality, undervalued businesses – and cash when appropriate – to outperform its benchmark. Branded as “Montgomery Global” in Australia to reflect a key.