With Hamilton County, Tennessee reporting its first case of the Corona Virus amid school closings, event cancellations and the like, it's hard to fathom how bad things could get for us here in the U.S. We've heard from many of you who have been thinking and praying for us here at Franklin Wealth and I want you to know that we truly appreciate your prayers. We are available to talk and meet via conference call or in person as we continue through this trying time. Things might look bleak, but we've been through times like this before and come out well on the other side. But let's take a look at the best indicator of how bleak things might get before they start to get better. If we really want to know, we should look at China to see how they have fared in the midst of this Pandemic.
Don't Look Now! - China is NOT Dead!
Stocks have been taking a beating most of this week amid the novel coronavirus outbreak, but with factories in China reopening and staff returning to pre-virus levels, the worst may be over for China.
With the first signs of the virus emerging in late November, China was late to report what they were dealing with in containing its spread. On December 31st, 2019 the World Health Organization was informed of 44 case patients with the Corona Virus in Wuhan, City. However, the Chinese stock market continued to advance, peaking on January 13th.
As the virus spread worldwide, the situation has actually improved.
Much of the world's manufacturing and lots of demand comes from China. With millions of people quarantined and stores shuttered, it was a foregone conclusion that everyone would suffer. Just how bad the lost revenues and profits will be remains to be seen, but there are signs that business is going back to normal in China, which bodes well for the country's prospects and its stock market.
Business in China Shows Signs of Life!
Last week, a major Chinese supplier to some of America's largest companies told investors it expects to return to full production by the end of March. They said staffing levels are at 50% capacity less than two weeks after resuming production at its plants. It's not clear what effects coronavirus will have on full-year results, but they noted the demand drivers, including 5G, remain intact.
Other signs are emerging that business is returning to normal in China, which means consumers should begin spending again. China's largest eCommerce provider, told Bloomberg its logistics business, food delivery service, and grocery chain are operating at pre-coronavirus levels. Another eCommerce rival in China, is projecting 10% revenue growth in the current quarter, despite the coronavirus outbreak.
How Much has been Lost in China?
As we noted, the Chinese Stock Market Peaked in mid-January, before the virus had started to spread worldwide. From the market highs, the Chinese Market has lost just shy of 20% to the lows seen yesterday. In fact, the MSCI China Index as of Thursday the 5th had lost less than 1% for the year and has now rallied over 5% from the current low of the year on March 12th, 2020. The worst may not be over for China's stock market, but there are many indications that the worst is over for its economy. Given this, it looks like China will be the first country with an economic and stock market recovery, from the recent turmoil.
How Do the Countries Compare?
In fact, investing in China this year has been less painful than many other countries. China recovered less today than the U.S., India and Brazil, but the stock market was never off as much from its highs as these other country's markets. Valuations in China and many other emerging markets are much more attractive than they are in the developed countries of the world and the U.S. in particular. As the rest of the world is trying to avoid contagion, China seems to be already recovering. Of course, we should take some of this news with a grain of salt, knowing the Chinese regulatory environment allows for a lot of grey area, but from what continues to surface from U.S. multinational companies who have manufacturing bases in China, the worst seems to be behind us.
If China Can Recover - So Can the Rest of the World!
Joe D. Franklin, CFP is Founder and President of Franklin Wealth Management, and CEO of Innovative Advisory Partners, a registered investment advisory firm in Hixson, Tennessee. A 20+year industry veteran, he contributes guest articles for Money Magazine and authors the Franklin Backstage Pass blog. Joe has also been featured in the Wall Street Journal, Kiplinger's Magazine, USA Today and other publications.
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