First and foremost: Wishing everyone a Happy Lunar New Year, good health, wealth, peace and love always!! Prayers be with the people in China for the Coronavirus to be contained as soon as possible.
Just as I thought that the market is becoming optimistic due to the US-China Phase One Trade Deal, China was struck with the Coronavirus. One of my holdings briefly hit HKD$1million but dropped back due to the spread of the virus.
Let's compare the number of infections and deaths over time to SARS (Severe Acute Respiratory Syndrome). Another virus that hit the market severely.
Source: user u/thejjbug in reddit [3]
From the plots, we observe a spike in number of infections and deaths as compared to SARS. The actual number of the former could be even much higher [1]. Furthermore, the spread of the coronavirus could be worsened since it coincides with the Lunar New Year. Chances are that we will not see the virus being contained anytime soon. SARS infected 5,327 people in mainland China in 9 months [4]. However, the coronavirus has already surpassed this number [2]. Fortunately, mortality rates are less severe than the SARS epidemic as health experts have highlighted [11].
Airlines have cancelled flights to China as demand fell and global companies advised employees against travelling [5]. The number of tourists visiting Macau fell 73% year on year on the first five days of the Chinese New Year festive period [6]. McDonald, Starbucks, several other fast-food chains and retailers have announced temporary closures [7]. Philippines has stopped granting visas on arrival to Chinese nationals [8]. WHO was considering whether to declare a global emergency [9].
The impact to the economy is very real.
More importantly, we can see fear is widespread.
China did many things differently as compared to the last SARS outbreak. The authorities notified the World Health Organization on the virus in less than three weeks after detecting the first case. This efficiency is as fast as other developed countries. Chinese authorities have also shut down almost all transit going in and out of Wuhan in response to the coronavirus outbreak. Many are impressed with China's swift decision especially during the Lunar New Year. Even Chinese nationals are more aware of protection measures against the spread of the virus [10]. This serves as good a test of resilience to see how China has developed in terms of its readiness and healthcare systems. Hopefully, another highlight of the China growth story.
“If past history was all there was to the game, the richest people would be librarians” - Warren Buffett
Let’s take a look at the Hang Seng Index for the period when SARS lasted approximately from November 2002 to June 2003, a total of 7months. Market bottomed on the 4th month (April 2003). Estimated 17% wiped out of HSI market.
Screen-capture from Yahoo Interactive Stock Chart (Hang Seng Index)
Some say that Gold is a good hedge for crisis. Yes it is but not sufficient in my humble opinion. I’ve position recently into inverse indices such as : YANG (Direxion Daily China Bear 3x Shares ETF), 7588.hk (CSOP Hang Seng China Enterprises Index Daily -2x Inverse). As these rises in multiples when the China market (such as HSCEI) falls, it is potentially a more profitable hedge. Let’s see how it fares in a few weeks time. In subsequent posts, I will share on what are some of the Chinese stocks that I am looking to buy, to take advantage of during this period.
Lastly, history have shown that humans are always resilient to fight and recover from any crisis thus far. I’m confident and hopeful that China will win this battle against the epidemic.
武汉加油, 中国加油!!
Video taken from South China Morning Post YouTube channel [12]
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Reference Links:
[1] https://www.nytimes.com/2020/01/28/world/asia/china-coronavirus.html
[2] https://www.scmp.com/news/china/society/article/3047979/china-coronavirus-death-toll-reaches-131-number-cases-surpasses
[3] https://www.reddit.com/user/thejjbug/
[4] https://www.straitstimes.com/asia/east-asia/chinas-virus-cases-surpass-its-sars-total
[5] https://www.straitstimes.com/asia/east-asia/wuhan-virus-airlines-cut-china-flights-as-companies-restrict-travel-on-virus-fears
[6] https://www.aastocks.com/en/mobile/news.aspx?newsid=NOW.989746&newssource=HK6
[7] https://www.businessinsider.sg/coronavirus-fears-mcdonalds-starbucks-close-2020-1/?r=US&IR=T
[8] https://www.channelnewsasia.com/news/asia/wuhan-virus-philippines-suspends-visa-china-visitors-12360506
[9] https://www.scmp.com/news/china/society/article/3048139/china-coronavirus-world-health-organisation-reconsider-non
[10] https://edition.cnn.com/2020/01/24/asia/china-sars-coronavirus-intl-hnk/index.html
[11] https://www.cnbc.com/2020/01/28/coronavirus-vs-sars-health-experts-on-the-key-differences.html
[12] https://www.youtube.com/watch?v=t_PSSTP8ROg&feature=youtu.be