Posted on March 8, 2020
By Michael Cembalest
Topics: Coronavirus severity and global impacts
- While infection rates are slowing inside China, COVID-19 infections are now rising outside China
- Mortality rates are skewed heavily towards older individuals with pre-existing conditions
- Since the virus is lethal for people with compromised lung capacity, mortality rates outside China might be lower given China’s combination of poor air quality and high smoking rates
- Global supply chains have been impacted given reliance on Chinese production for key intermediate goods, but the impact on the US should be manageable
- While there are reports of Chinese factories reopening, most activity indicators are still close to their post-lunar new year lows
- Markets are now pricing in large earnings declines from the virus in 2020; the hit to Chinese earnings may be even bigger that what’s priced in, while the hit to US earnings might be smaller
- COVID-19 raises important questions about the right risk premia for holding Chinese financial assets
