Markets

Coronavirus Infects Global Markets

Daily updates about the COVID-19 virus are rattling investors’ nerves everywhere.

Brace yourselves. We could be in for several months of disquiet as the coronavirus now known as COVID-19 spreads well beyond China.

China accounts for roughly 20% of worldwide growth, so the global economy will feel a bite, too, S&P said, thanks to “sharply reduced tourism revenues, lower exports of consumer and capital goods, lower commodity prices, and industrial supply-chain disruptions.” In the U.S., “economic fundamentals remain sound and the Federal Reserve stands ready to take action,” says Capital Group U.S. economist Jared Franz. The virus should not derail his forecast of 2% U.S. growth in 2020, he says.

Luxury brands are suffering. In 2019, Chinese shoppers at home and abroad accounted for 33% of the luxury-goods industry, according to Burberry. The British luxury brand warned in February that the virus is causing a “material negative effect on luxury demand,” and it temporarily closed 24 of its 64 stores in mainland China. Sales in China account for a large portion of revenue at Tiffany and Nike, too, according to Morgan Stanley.

Supply chains are disrupted. Many parts for smartphones and cars are made in China. Qualcomm, a leading smartphone chip maker, warned that the outbreak was causing “significant” uncertainty around smartphone demand and the supplies needed to produce them. Apple warned its March quarter sales would be lower than expected because of a “slower return to normal” production of its smartphones at China’s factories.

Other companies at risk of supply-chain setbacks include Best Buy, Floor & Décor Holdings, Gap and General Motors, reports Morgan Stanley. Travel curbs hurt, too. Dozens of airlines have reduced their flights to China through March or April, including American, Delta, Lufthansa, Swiss Airlines and United. At the height of SARS, airline passenger volumes were down 35%, according to the International Air Transport Association.

The good news: Once the pace of contagion slows, the economy should rebound. SARS was short-lived, and analysts expect the same for the current coronavirus. S&P Global expects China’s economy to expand by 6.4% in 2021, and so should hard-hit stocks.

As concerns lessen, look for a number of stocks hit hard by the coronavirus to recover, says Morgan Stanley. For example, through mid February, Las Vegas Sands (symbol LVS), which owns and operates three casinos in Macau, had slipped 8% from its January peak. In early February, Macau officials closed all casinos for half a month in an effort to contain the virus. Stock in Booking Holdings (BKNG), formerly Priceline.com, dropped 5% from its high in early January. The online travel firm has invested heavily in Chinese travel firms, including Trip.com, considered the Expedia of China. Starbucks (SBUX) has some 4,100 locations in China, its largest market outside of the U.S. In late January, it closed 2,000 stores temporarily. Shares are down 4%.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
How to Calculate the Break-Even Age for Taking Social Security
social security

How to Calculate the Break-Even Age for Taking Social Security

When it comes to maximizing your Social Security benefits, there are many elements to consider. One factor that can be especially enlightening is your…
August 30, 2021
Spend Without Worry in Retirement
Financial Planning

Spend Without Worry in Retirement

Fears of running out of money prevent many retirees from tapping the nest egg they’ve worked a lifetime to save. With these strategies, you can genera…
August 30, 2021

Recommended

Investment Strategies for the 4 Stages of the Economic Cycle
Markets

Investment Strategies for the 4 Stages of the Economic Cycle

The U.S. economy is cyclical in nature, surging ahead and pulling back in waves over time. Investors’ portfolios need to change with the rise and the …
September 19, 2021
Child Tax Credit Payment Schedule for the Rest of 2021
Tax Breaks

Child Tax Credit Payment Schedule for the Rest of 2021

The IRS has already sent three batches of monthly child tax credit payments. Here's when you can expect the rest of your payments.
September 16, 2021
Is a Target Date Fund Right for You?
investing

Is a Target Date Fund Right for You?

You're busy, and poring over investments is a pain. Wouldn't a target date fund be easier? Take a look at their pros and cons to see if incorporating …
September 14, 2021
COVID-19 Home Test Kits and PPE are Tax Deductible
Tax Breaks

COVID-19 Home Test Kits and PPE are Tax Deductible

You can also pay for home testing kits and personal protective equipment with FSA and HSA funds.
September 11, 2021