01 Mar The coronavirus & The Economy
The coronavirus has been on the news for quite some time now and it doesn’t seem like it will leave the headlines for a while. In fact, it is starting to stretch into the financial sphere as its reach expands into the global economy. Nations around the world are focused on containing the effects of the virus, and so are corporations. If you look on the back or the tag of just about anything you bought at the store, it will most likely say ‘made in China’. This is because China is currently (and has been) the manufacturing capital of the world. With the virus striking into the heart of China’s manufacturing provinces, it is not hard to see how many major corporations are looking for a more stable location to pull their products from. Long story short, the coronavirus has had and will continue to have an impact on the global economy. This article is meant to briefly inform you on the when, why, and how.
Mike Murphy of Market Watch stated that the coronavirus could affect the trade deal in a few ways. One way is that China may not be able to hold up their end of the deal on the number of agricultural products they would import from the US. The global supply chains are also in danger due to the fact that the virus is centralized in one of the largest manufacturing hubs in the world’s leading manufacturing country. This means that many larger corporations are likely to start looking for somewhere else to assemble their products. French auto-maker PSA said it had plans to evacuate employees and their families. While GM, Ford, & Fiat have already restricted employee travel to Wuhan (the center of the outbreak).
David Lynch of the Washington Post has also discussed the effect the virus has had on the global economy. He brought to attention the shortage of parts in Asian & European auto–plants. Many of these manufacturers could face shortages in the coming weeks, which will directly affect the consumers for these companies. And although Nike is not an auto manufacturer they are just as big. They rely upon 110 Chinese factories each with their own supply webs. Long story short the consumer will start feeling the economic effects of the virus very soon.
Not only is manufacturing affected, but tourism and travel is being hit hard right now as well, not only because Chinese tourists are staying at home. American companies are preparing for the unexpected as United and American Airlines announce that they would not resume normal service to mainland China until after April 24th. That is a lot of time to not be servicing one of the largest economies in the world. The shocking part that this was extended a month later than previously expected. Not to mention that passenger flying rates have fallen by about 75% below where they were at last year.
Alexa Stevenson of the New York Times, has recently released an article explaining that the most likely thing to severely hit the global economy would the the coronavirus halting Chinese production and consumption. China may be one of the largest names in manufacturing, but they are also an insatiable consumer of world goods as well. Before the tariffs, China was buying over one quarter of all American soy. This will also expand into the Australian coal mining industry, the Indian automotive industry, and many of the economies bordering China who are dependent upon them for entire sectors of their economy. Long story short, the coronavirus will impact every level of the American economy in one way or another.
At the end of the day all we can do is stay careful and healthy, as well as pay attention to this developing story. Just about every investor has felt the negative effects of the coronavirus and its hold on China. However, that doesn’t mean that there is no hope in your investments. Our clients have been able to avoid the worst of this global epidemic, while reaping the benefits of the market gains during this same time frame. The key lies not only in the fact that our clients portfolios are diversified in markets that are not reliant on the market, but also tactical investing and the fact that each of our clients has a retirement plan that is custom made to their specific retirement limitations and goals. The economy is taking its hits but many are still optimistic for the new channels of trade that are opening through this global incident. Remember, staying well informed is the key to making a well-informed decision. Plan Smarter & Live Better.