Broker Check

How Long is the Road to Recovery?

| March 14, 2020
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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.



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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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Please remember that past performance may not be indicative of future results. Indexes are un-managed and cannot be invested into directly. Index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investments. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Franklin Wealth Management), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Franklin Wealth Management. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Franklin Wealth Management is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Franklin Wealth Management’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

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