08 9442 0000
Home
Financial Planning
Financial Planning
Prosper Managed Portfolios
Family Package
Money Management Services
Superannuation
Corporate Super
Self Managed Super Funds
Investment & Wealth management
Wealth Management
Asset Management
Age Care Advice
Pre-retirement Planning
Retirement Planning
Government Benefits
Estate Planning
Business & Personal Insurance
Business Insurance
Personal Insurance
Wealth Protection
Working with Provident
Our Advice
Our People
Insurance Services
Insurance Services
About us
Commercial Insurance
Domestic Insurance
Claims
Workers' Compensation
Working with Provident
Our Advice
Our Process
Our People
Client Portal
Client Testimonials
Client Testimonials
2023 Enjoy Factor
2022 Enjoy Factor
2021 Enjoy Factor
2020 Enjoy Factor
2019 Enjoy Factor
2018 Enjoy Factor
2017 Enjoy Factor
2016 Enjoy Factor
2015 Enjoy Factor
2014 Enjoy Factor
2013 Enjoy Factor
2012 Enjoy Factor
2011 Enjoy Factor
About
About
Our people
Leadership Team
Financial Planners
Support Team
News
News
Latest News
Market update
Contact
Contact
Booking
The China Coronavirus outbreak -economic and investment market implications
See more
Latest News
How to boost your retirement savings as super and tax laws change
Is ' keeping up with the Joneses' holding you back?
3 ways your retirement income can shrink and what you can do about it
Give your finances a shake out for 2024
Is the refinance boom over?
The Global business risks for 2024 - Navigating the new normal
5 ways to finance your renovation
Helping you loosen the purse strings
How do interest rates affect your investments?
Why an emergency fund delivers peace of mind
Bushfire season - plan and be prepared
Spotlighting Dr Gregory Deleuil AM - A Distinguished Career
Will these super changes affect you?
9 Money mistakes people make in retirement
Who needs a testamentary trust?
Public Liability vs Professional Indemnity Insurance?
Preparing for a spring property purchase
15 Common sense tips to help manage your finances
Can I go back to work if I've already accessed my super?
Your 7-point retirement planning checklist
9 ways to boost your super savings
What is capital gains tax and when might I have to pay it?
As scans evolve, so can you
Insurance for running a home business - are you covered?
What the RBA overhaul means for interest rates
The 2023-24 Budget Update
6 Mistakes to avoid when refinancing in 2023
Guide to your preservation age
How to review your direct debits and save
Top tips on how to save money
What are the Global Business Risks for 2023 and how could they impact your business?
11 things to know about your super
6 easy ways to save for the future today
Reviewing your personal insurance policy
Protect yourself and your business from Cyber risk
How high will interest rates rise in 2023?
Federal Budget Insights October 2022-23
6 tips to reduce your debts before you retire
The work test and work test exemption explained
How to budget as interest rates rise
Eight tips to consider in times of volatility
Water damage now one of the biggest domestic property risks
What should I do when my fixed rate expires?
Should I take my super as a lump sum
7 age pension traps to avoid
Super changes that could affect you from 1 July 2022
Your super checklist for EOFY
What are the key insurances for your business in 2022
Pre-tax time checklist for property investors
Key points from the 2022-23 Federal Budget
The 2022-23 Australian Budget
Budget smarter with the 50/20/30 rule
Can your insurance weather the storm?
How to build a property portfolio
How does a transition to retirement pension work?
Tax-deductible super contributions explained
There's an investor in all of us - and most of us already invest in one way or another
Spouse super contributions - what are the benefits?
How to save for retirement at every age
7 ways to stay active and healthy in retirement
Insurance coverage with 'Worker to Worker' claims
5 Tips to take the stress out settlement day
Protecting your loved ones
6 steps to help you feel more positive about your finances
Super bring-forward rules now apply to more people
Super contribution caps are going up from 1 July 2021
Three finance strategies for purchasing your next property
Why it's important to think about insurance ahead of retirement
Working from home - what are the risks?
Your super checklist for EOFY
What are the top 5 global business risks and how could they affect you?
How to pay off your home loan faster
Market Update 5 March 20201
Australian house prices on the upswing - seven things to bear in mind about the Australian property
Research confirms the incredible value of Insurance brokers
Smart ways to save for a deposit
3 Golden rules that make saving for retirement easier
Do I need Professional Indemnity Insurance
Is it the right time to refinance an investment property?
Market Update December 2020
Federal Budget 2020-21 round-up
Market outlook Q&A - disconnect to real economy, growth v value, vaccines, property, gold, inflation
Cyber security will be a key risk for years to come
Come prepared: your home loan application guide
Essential checklist for the end of financial year
Diversification - why it matters more than ever
Phishing attacks - Will you take the bait?
Preserving retirement savings during COVID-19
Why it is NOT the time to cancel your insurance
A homeowner's guide to refinancing
Working from home because of COVID-19? Be wary of new Cyber scams
Federal Government stimulus package
What effects may the Coronavirus have on insurance?
The plunge in shares - Seven things investors need to keep in mind
Dividends Explained
How does using an Insurance Broker benefit you?
Why it's a good idea to get pre-approval
Three reasons why low inflation is good for shares and property
The China Coronavirus outbreak -economic and investment market implications
Why super and growth assets like shares really are long-term investments
7 tips to improve your financial wellness
How safe is your ID?
The hidden insurance risk lurking in our homes
Perth Property market signals the bottom of the market.
Commonwealth Seniors Card - qualifications, issues and considerations
Making downsizer contributions into super - what you need to know
Rates Fall - Lending Appetite Increases - Consumers Win!
The insurance implications of working from home
Record keeping in managing slip and trip risk goes digital
Are you underinsured?
Falling home prices & the impact on jobs - will the RBA react?
Navigating the small business lending market
RBA cuts rates to a new record low - Why? Will it Work? How low will rates go? and What does it mean
The nine most important things I have learned about investing over the past 35 years
The 2019-20 Australian Budget
4 Ways to avoid risk when buying property this Autumn
5 Life insurance questions you've always wanted to ask
6 Steps to get your money stuff together
Managing Driver Fatigue
Most older Aussies prefer home care over a nursing home
Airbag Recall
How much super should I have at my age?
How to protect your personal assets if your small business is sued
I'm young - do I need life insurance now?
Protect your home from water damage
The tradie’s guide to insurance
Setting up an emergency response plan
What are the 3 biggest living expenses for households?
Would you like to retire by 40?
Are you entitled to a tax deduction on personal super contributions?
The value of an insurance representative
Can I go back to work if I’ve taken my super?
I have health insurance, what else do I need?
What is the retirement age in Australia?
Make the most of your retirement entitlements
6 tips for retiring earlier
5 ways to a longer, healthier, happier life
How do I care for children and ageing parents?
Getting ready for retirement: 11 things to address
2017 has been kind to investors
How to retire, your way
Don't want to be retired and in debt?
Your super checklist for EOFY
Market update
Latest News
Market update
The China Coronavirus outbreak -economic and investment market implications
| 7/02/2020
The China coronavirus outbreak has led to concerns fo a global pandemic triggering an economic downturn. Our base is that the outbreak will be contained allowing share markets and bond yields to rebound. However, uncertainty his high given that the coronavirus is more contagious than SARS albeit with lower mortality. Key to watch for is a peak in new cases and contained transmission in developed countries.
Introduction
The last few weeks have seen escalating concern that a new coronavirus (called 2019 novel coronavirus or nCoV) originating in the Chinese city of Wuhan in Hubei province will become a global pandemic. Concern has been heightened after the World Health Organisation (WHO) declared the outbreak an “international public health emergency” on 30 January and the number of cases has continued to escalate. While this is first and foremost a human crisis, there has been increasing concern that the associated disruption to economic activity will trigger a global economic slump. Consequently, share markets have seen falls (ranging from 3% for global and Australian shares to around 7% for Asian shares and 12% for Chinese shares), commodity prices have fallen, and bond yields have collapsed again. While the current situation is highly uncertain, the experience with SARS, bird flu, swine flu & Ebola highlight worst-case pandemic fears don’t usually eventuate.
What do we know about this Coronavirus
Here is a summary of information regarding nCoV:
• Coronaviruses circulate in animals but can be transmitted to humans and affect the respiratory system. SARS in 2003 & MERS in 2012 were examples. Symptoms can be treated but there are no vaccines or antiviral drugs for them (at present). Like SARS, nCoV looks to have originated in wildlife markets in China.
• So far there are over 24,500 confirmed cases worldwide, with 99% of cases in China. But the number of cases is still rising rapidly and more/faster testing could mean many more with spikes in the number of new daily cases.
• So far the mortality rate is running at 2% which puts it above swine flu but well below SARS (which settled around 9%). And of those dying, its mainly been older people or those with pre-existing conditions (as with common flu).
• Against this, nCoV has been more contagious with total cases well above those for SARS (8000) and patients can be contagious but without symptoms for 1-2 weeks.
Source: PRC National Health Commission, John Hopkins CSSE, AMP Capital
Source: PRC National Health Commission, John Hopkins CSSE, WHO, AMP Capital
• Containment measures – notably in China – have been more aggressive and started earlier than in the case of SARS. These include restricting travel into and out of Hubei province and various countries have restricted (and in some cases banned) foreign travellers entering from China.
Past experiences
To provide some context it is worth reviewing past pandemics – both real and feared. There were three influenza pandemics in the last century: 1918-19, 1957 and 1968. The 1957 and 1968 pandemics are estimated to have killed up to 4 million people. However, the 1918 Spanish flu pandemic was the most severe. While the mortality rate was low, up to 50 million people died worldwide. With a big proportion of the population staying at home, economic activity was severely disrupted, although this was compounded by the ending of World War I. US industrial production slumped 18% between March 1918 and March 1919. Australian real GDP slumped 5.5% in 1919-20 (but then rebounded 13.6% in 1920-21). The share market impact is hard to discern given the ending of WWI, however US and Australian share markets rose through much of the pandemic period. The SARS outbreak of 2003 is a more useful guide. After emerging in China around February 2003, SARS infected about
8000 people (mostly in Asia) in 30 countries over a five-month period and had a mortality rate of about 9%. SARS had a big negative impact on the countries most affected as people stayed home for fear of catching it. GDP in China, Hong Kong and Singapore slumped by over 2% in the June quarter of 2003. Growth then subsequently rebounded.
Source: Thomson Reuters, AMP Capital
Reflecting SARS, Asian shares fell in April 2003, even though global shares started to move out of a three year bear market from March. The April 2003 low in Asian shares coincided with a peaking in the number of new cases.
Source: Thomson Reuters, AMP Capital
Most pandemics have taken 6-18 months to run their course and peter out as measures are taken to slow their spread (eg, hygiene, quarantining, banning gatherings, preventing travel). SARS ended quicker due to the nature of the virus and rapid action by authorities. In 2005/2006, there was significant concern that a severe strain of bird flu (called H5N1), which was resulting in human casualties, mainly in parts of Asia where people had contact with chickens, would mutate into a form that was readily transmissible between humans. However, this didn’t really eventuate and as such the economic impact was modest although it did cause bouts of volatility in share markets. Similarly, concern that the spread of swine flu would become a global pandemic rattled share markets for a while around April 2009, and Ebola did the same in 2014, but both quickly faded.
The economic and financial impact of nCoV
After strong double-digit gains over the last year and with investor sentiment pushing up to high levels indicating a degree of complacency, share markets were at high risk of a correction in mid Jan and the fears around coronavirus have provided the trigger. Given their greater sensitivity to Chinese growth, commodity prices like Chinese shares are down by more and the Australian dollar has fallen to October lows below $US0.67. What happens from here depends on how long it takes for the outbreak to be contained. The higher number of cases than with SARS or swine flu suggests a greater economic impact. But given the range of possibilities, the best way to get a handle on the economic and investment market impact is to consider several scenarios. Here we consider two.
1. Containment within the next month or two
– the number of cases continues to rise but it remains mainly contained to China (and Hubei) and the number of new cases starts to peak in the next month or so. This would allow travel restrictions to be removed by the June quarter. Under this scenario:
• GDP in China and parts of Asia would likely take a 2 to 3% hit (taking Chinese GDP growth from 6% year on year in the December quarter to 3-4%yoy in the current quarter) as workers stay home and travel dries up. With the Chinese economy now being four times the share of global GDP it was at the time of SARS, this along with some drag on growth in developed countries would knock world growth to around 2.5% year on year (from around 3%). However, growth would rebound in the June quarter as travel restrictions are removed and things return to normal.
• Australian growth could see a 0.2% hit in the current quarter mainly due to the loss of Chinese tourists (which account for 20% of tourism earnings and 0.2% of GDP) but also lower raw material demand and an impact on confidence. With the bushfire impact this could see GDP contract, but growth would rebound in the June quarter.
• Against this background share markets, commodity prices and the $A could still fall a bit further in the near term but would quickly rebound by the June quarter. Easier than otherwise monetary and fiscal policies - with more stimulus measures already announced in China - would aid this.
2. Global pandemic
– the number of cases continues to escalate beyond China and aren’t contained until say mid-year.
• This scenario would see a bigger and longer negative impact on economic activity. Global travel would collapse. Many would simply not come into work – a reasonable estimate is around 20% of workers, although this might be spread over time. This would see a sharp slump in global GDP and the risk of global recession. Australia would not be immune and would likely see two negative quarters of growth with flow on to education exports to China (which accounts for another 0.6% of Australian GDP).
• Share markets would likely fall sharply – maybe by 20% or so - reflecting the huge economic uncertainty. Cash would be the place to be. The $A could fall to around $US0.60.
• However, economic activity would rebound quickly once it’s clear the pandemic is under control. Share markets are likely to anticipate this. But this wouldn’t occur till the second half of the year.
Concluding comment and what to watch
While there is reason for concern and it is easy to dream up nightmare scenarios, the experience with SARS, bird flu (with “predictions” it could kill as many as 150 million people) and the mini panic regarding swine flu and Ebola tell us that the worst case fears of pandemics usually don’t come to pass. Rapid containment measures provide some confidence this will be the case. As such, our base case scenario (with 75% probability) is one of containment over the next month or two. This could still see more downside in share markets and bond yields in the near term, but they are likely to rebound by the June quarter as economic growth rebounds. The key things to watch are:
• The daily number of new cases – the SARS experience saw markets rebound once this showed signs of peaking.
• The spread of new cases and deaths in developed countries – if this remains limited then markets will also get more confident that the economic fallout will be short lived.
DR SHANE OLIVER
HEAD OF INVESTMENT STRATEGY AND CHIEF ECONOMIST
AMP CAPITAL
About the Author
Dr Shane Oliver, Head of Investment Stratgey and Economics and Chief Economist at AMP Captial is responsible for AMP Captial's diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.
THIS ARTICLE WAS RELEASE BY AMP CAPITAL 5 FEBRUARY 2020, FOR MORE AMP CAPITAL UPDATES GO TO
WWW.AMPCAPITAL.COM.AU
Back to News