Threat from Coronavirus puts China’s trade war recovery at serious risk

If ever there was a perfect time to book profits on China China, the time is now.

Despite analysts’ estimate of the Chinese economy doubling in size in 2020 in comparison to where it was a decade ago, all of it could be put on hold if the coronavirus is not contained.

The coronovirus outbreak comes at a time when the Chinese economy is near its 30-year low, and close to the annual Lunar new year celebrations which sees the world’s biggest mass movement of people.

While China’s government has imposed travel restrictions and has set up a special team to handle the outbreak it has appointed premier Li Keqiang to control and stop the spread of the virus, which has already killed at least 80 people in China.

Analysts at Barclays Capital say, they expect the outbreak to reduce China’s GDP by at least 0.2% this year.

While the U.S.-China Phase 1 trade deal has helped China to weather the trade war, the reprieve is likely to be short lived if the outbreak escalates to levels beyond the 2003 SARS crisis.

China’s 2019 GDP is expected to have beat market consensus estimates of under 6% and come in at around 6.2%. China’s stock market has been sliding ever since the coronavirus hit the headlines.

The coronavirus “could be 10 times bigger than the SARS epidemic because that virus was transmitted by only a few super spreaders in a more defined part of the country,” said Guan Yi, a virologist who helped identify severe acute respiratory syndrome (SARS) in 2003 in an article in The Washington Post.

Resident of Wuhan are on lock-down. News reports say as many as 5 million have left the city before restrictions were put into place.

Early last week, nearly 600 cases were reported. This amount has now tripped to more than 2,000 with 2,700 people under observation in Wuhan for exhibiting symptoms of the virus, reads a report from the South China Morning Post today.

“If this turns into something akin to the SARS outbreak, it could reduce China’s real GDP growth in 2020 by half a percentage point for the year, taking the official growth number under 5.5% for the first time ever.” said Agathe Desmarais, global economic forecaster for The Economist Intelligence Unit.

The number of people infected with the virus in China has increased tenfold in the past few weeks, with the outbreak spreading from Wuhan to almost all provinces.

Financial markets are watching the situation closely. This provides funds managers, especially the quantitative funds, a reason to sell. The more bad headlines hit China, the more its stock markets is likely to get affected, which could provide market opportunities.

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