Skip to main content
Back
Select your role:
  • Individual Investor
  • Intermediary
  • Institutional investor

The impact of coronavirus on Chinese equities 

3 February, 2020

Ronald Chan, Chief Investment Officer Equities, Asia ex-Japan
 

Concerns about the economic and financial impact of the coronavirus outbreak have seen some offshore Chinese equities come under pressure1. However, Ronald Chan, Chief Investment Officer, Equities, Asia (ex-Japan), believes that if these worries lead to a broad-based correction, then any market decline should be short-lived or contained. While economic uncertainty could also hurt China’s first-quarter manufacturing and GDP numbers, Chan thinks that the government could introduce further policy easing measures to ensure growth stability. As the viral outbreak may improve with warmer weather in the coming spring, investment sentiment should gradually improve. In the meantime, investors should remain focused on the market’s long-term fundamentals. 

Worries about the coronavirus have seen global investors become risk-adverse and triggered a selloff in some offshore Chinese equities. However, if we use market performance2 and the experience learnt during the SARS outbreak in 2003 as a reference, we believe that a broad-based correction should be relatively short-lived with a more effective virus containment policy.

In light of a heightened public health precaution and the introduction of provincial travel bans, selective segments, such as hospitality, transportation, and gaming activities are expected to face some shortterm pressure. Meanwhile, on-line consumption activities may benefit.

Uncertainty over the extended Spring Festival holiday period may also cause some disruption to manufacturing production in the first quarter. As such, the Chinese authorities might engage in further policy easing to ensure growth stability. 

Nevertheless, if the situation shows signs of containment, then high quality companies with diversified footprints and strong business models should be resilient. These firms could lead the rebound, as consumption demand gradually resumes. Moreover, while a full economic recovery may be delayed, the momentum in the underlying economy, such as the resumption of corporate capital expenditure in the fourth quarter of 2019 should provide a buffer to this unexpected business disruption. 

Overall, investors should remain convicted of the view that key secular trends that form the basis of our investment themes are unchanged: online-led consumption upgrade, 5G roll-out beneficiaries, and policy-driven opportunities in medical reform, supply-side reforms, and sustainability topics.

As we mentioned in our 2020 outlook, we think that disposable-income growth across China and the convergence of urban and rural incomes offer unique opportunities for e-commerce platforms and apps. 

5G roll-out should be a prominent theme in Greater China equities, especially in China A-shares, as the cell-phone replacement cycle in mainland China is expected to shrink from 24 months to its historical average of 15–16 months. Therefore, investors should be constructive on battery producers, chips, frequency, and antenna-related industries.  

Finally, investors should remain focused on policydriven opportunities and we are positive in areas of environmental protection, such as natural gas distribution and some waste-to-energy companies. This stance is based on long-term support from the government. 

1 Bloomberg, 24 January 2020 to 30 January 2020: Hong Kong’s Hang Seng Index (in HK dollars) dropped by 5.37%, while MSCI’s China Index (in US dollars) corrected by 4.1%. 

2 Financial Times, 28 January 2020: Investors look to history for clues on market impact of coronavirus.

 

  • Better Income

    A “Better Income” approach seeks to understand an investor’s investment objective alongside the underlying risk of certain levels of income generation. “Better” income may not refer to the highest income level but the stability and consistency of reasonably higher yields generated throughout various market cycles.

    Read more
  • Dollar cost averaging and its benefits

    If investors wish to reduce volatility and benefit from long-term growth when the markets move up and down, the passive strategy of dollar cost averaging may be a feasible choice.

    Read more
  • Strike a balance in life, and most importantly, in your portfolio!

    A balanced asset allocation usually provides investors with a smoother investment experience and perhaps helps protect them from selling equities after they have already fallen in price. If you believe that we are likely to enter a period of further economic weakness, we’re likely to be reminded of the importance of bonds in a portfolio.

    Read more
See all
  • Hong Kong/Mainland China market update

    Despite the market fall, we believe that the China Q4 2023 GDP growth trend has already been priced into the index, with some bright spots being neglected. Mainland China’s four mega trends (i.e., the “4As”) remain intact as better-than-expected inventory destocking and increased policy measures suggest a potential bottoming of the economy.  

    Read more
  • India’s bond index inclusion: Attracting foreign investment; bolstering its regional position

    Indian government bonds would be included in the JPMorgan Government Bond Index-Emerging Markets (GBI-EM) Global index suite starting in June 2024. We examine the short- and long-term implications of this significant decision for the Indian bond market.

    Read more
  • Index inclusion reinforces India’s transition to its next stage of growth

    We explain how India’s impending inclusion in the JPMorgan Government Bond Index- Emerging Markets (GBI-EM) index should lead to an increase in global inflows.

    Read more
See all
Confirm