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.

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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 (opens in new tab)), 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 (opens in new tab)), 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 (opens in new tab)) 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%.

Nellie S. Huang
Senior Associate Editor, Kiplinger's Personal Finance

Nellie joined Kiplinger in August 2011 after a seven-year stint in Hong Kong. There, she worked for the Wall Street Journal Asia, where as lifestyle editor, she launched and edited Scene Asia, an online guide to food, wine, entertainment and the arts in Asia. Prior to that, she was an editor at Weekend Journal, the Friday lifestyle section of the Wall Street Journal Asia. Kiplinger isn't Nellie's first foray into personal finance: She has also worked at SmartMoney (rising from fact-checker to senior writer), and she was a senior editor at Money.