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Christopher Smart

“This is crazy. The media coverage is just scaring everyone. Except, now they say it may have been here undetected for weeks!”
“It’s not much worse than the flu … But when was the last time I washed my hands?”
“Great! Finance ministers and central bank governors are all on the same page … Fifty basis points … a hundred? They must know something we don’t!”
This is just a sampling of the ticker tape running through investors’ heads these days. Most of the time, investors stare studiously at their screens, fiddle at length with their spreadsheets and make a reasoned judgment to buy or sell based on data, analysis and a hunch.

But as the coronavirus headlines multiply, money managers must contend with much noisier voices rattling around in their heads.
First, they must try to understand new dynamics around contagion and mortality rates to project just how far the disease may spread. Second, they must assess how much damage mounting fears of the disease will feed into growth and earnings. Third, and hardest of all, they must keep their own emotions in check.


“Why shouldn’t I make that trip to New York?” “Will they really cancel the Olympics?” “Don’t all those masks look ridiculous? Why did my local chemist just run out?”
Analysis of the health data is difficult enough. Epidemiologists have rough precedents from severe acute respiratory syndrome, the Zika epidemic and even the 1918 Spanish flu, but they don’t really know how quickly this new disease will spread.
Europe to shut border for month as France braces for 15-day coronavirus lockdown
Developing countries like Iran don’t have the public health infrastructure to contain it. Developed countries like Italy struggled to shut down major cities even when that seemed like the wise choice.
Still, as awareness grows and government coordination picks up, it’s possible to see through to the other side. Already the number of new cases in China is falling and it seems reasonable to expect decent forecasts for other parts of the world in time, too.


Assessing the economic shock is trickier, since it depends on the assumptions – and success – of health care professionals. Still, it’s possible to unpack the most important moving parts.
The disease itself and the measures to contain it delivered a clear shock to the Chinese economy, which has been supporting about a third of the world’s growth.
What can China’s economic slump teach rest of the world?
Both official and unofficial purchasing managers’ indices for February sank to record lows. Factories are slowly returning to work, but may not be back to full operations before well into the spring.
In South Korea and Japan, most of the cases so far have been concentrated and traceable, so we may soon have a sense of the impact there, too.


Economically, there will also be ripple effects through global supply chains. Apple swiftly reduced its revenue guidance while other firms suspended guidance altogether.
You can’t sell a car without all the parts. You can’t sell a dress without the dress. The impacts will be difficult to measure, but analysts have already begun to lower earnings estimates.
Apple reopens all its stores in China with shorter trading hours
The combined impact of these supply shocks will also feed through to demand. Again, there is no formula for adjusting these assumptions, but anyone who was expecting corporate capital expenditure to bounce back in the wake of the trade truce between Washington and Beijing will need to think again.
The ever-resilient and optimistic American consumer may even waver if the meeting cancellations and market gyrations continue to fuel worries. This will require adjustment to growth estimates.

Pricing in this new reality is hardly precise, but it has clearly begun and it is what professional investors are paid to do. What is so much harder, however, is to keep their own emotions in check as they stare at all these projections.
This is one of those moments in markets when the news, data and price monitors spill off the screen and into the realm of personal worries.
“Why did I agree to meet at this Chinese restaurant anyway?” “Are they really closing schools in New York?” “When was the last time someone cleaned this keyboard?”
Franklin D. Roosevelt famously warned Americans during the Great Depression that the “only thing we have to fear is fear itself”. Of course, in financial markets, it is sometimes eminently logical to panic when everyone else is running for safety.

But fear, as Roosevelt went on to say, can be “nameless, unreasoning, unjustified terror which paralyses needed efforts to convert retreat into advance”. A successful investment strategy will involve seeing through the coronavirus contagion and containment trends before everyone else and making a more realistic estimate of the economic and financial damage.
It will be finding a way to moderate – and mediate – those voices in your head.
Christopher Smart is chief global strategist and head of the Barings Investment Institute


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Coronavirus-wary investors could learn from Franklin D. Roosevelt and inoculate themselves against fear

A trader reacts to news on the floor of the New York Stock Exchange on March 11. Photo: AP

A person with grocerys in plasic bags walks on the Upper East Side in New York on February 28, 2020, ahead of the statewide ban on plastic bags that takes effect March 1. - Consumerist mecca New York targets its throwaway culture this weekend with a ban on single-use plastic bags that has been years in the making and is still rare in America. New Yorkers like to see themselves at the forefront of efforts to save the environment but have become used to receiving groceries in free poly bags often doubled for solidity. On Sunday, that will change when New York becomes only the third US state to outlaw the non-biodegradable carriers blamed for choking rivers, littering neighborhoods and suffocating wildlife. (Photo by TIMOTHY A. CLARY / AFP)

FILE PHOTO: U.S. President Donald Trump is seen on a news broadcast discussing the coronavirus spending bill on the trading floor at the New York Stock Exchange (NYSE) in New York City, U.S., March 6, 2020. REUTERS/Andrew Kelly/File Photo

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Thursday, March 12, 2020. The rout in global stocks deepened as investors showed a lack of faith in the U.S. and European policy responses to the worsening spread of the coronavirus. The dollar surged. Photographer: Michael Nagle/Bloomberg

A coronavirus pandemic may well be the trigger for the long-feared global debt crash

A worker wearing a protective suit takes body temperature measurement of a man inside the Shanghai Stock Exchange building on February 28. Even before the coronavirus scare, it had already begun to look like a question of when, rather than if, a debt crisis would erupt. All that was missing was the “trigger”. Photo: Reuters

epa08238996 Managing Director of the International Monetary Fund Kristalina Georgieva (C) arrives at a historic site after the first meeting of Finance ministers and central bank governors of the G20, in Riyadh, Saudi Arabia, 22 February 2020. Finance ministers and central bank governors of the G20 are meeting in Riyadh on 22-23 February. Saudi Arabia will be hosting the 2020 G20 Leaders' Summit scheduled for 21-22 November. EPA-EFE/YAHYA ARHAB

Coronavirus has sparked an ‘infodemic,’ with stock markets battered by news spreading panic via smartphones and tablets, say analysts

Illustration: SCMP

Charts on the coronavirus economic effects

Opinion

Business


Investors must digest the health data, gauge the impact of the spread of Covid-19 on growth and earnings and, most importantly, keep their emotions in check



Investors must digest the health data, gauge the impact on growth and earnings and, most importantly, keep their emotions in check.


Coronavirus pandemic

Coronavirus pandemic: All stories

Stocks

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

Macroscope

Coronavirus-wary investors could learn from Franklin D. Roosevelt and inoculate themselves against fear

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;} Investors must digest the health data, gauge the impact of the spread of Covid-19 on growth and earnings and, most importantly, keep their emotions in check

Investors must digest the health data, gauge the impact of the spread of Covid-19 on growth and earnings and, most importantly, keep their emotions in check