COVID-19: What Can Foreign Investors Expect?

The developing epidemic situation has been posing significant challenges to the Chinese government since the beginning of 2020.

February 2020 , by

The developing epidemic situation has been posing significant challenges to the Chinese government since the beginning of 2020. Although the growth of new infections has slowed significantly, many foreign countries are still concerned about the potential economic impact. The very volatile stock markets in different countries during the period may reflect this sentiment.

Our solid presence across Greater China enables us to observe the situation and through this article, we aim to shed some light on the following topics:

  1. What Is Happening in Wuhan and Other Cities? 
  2. Potential Economic & Industry Impacts for Mainland China
  3. Actions the Chinese Government Has Already Taken
  4. Future Initiatives by the Government  
  5. Conclusion: What Can Global Investors Expect?

1. What is Happening in Wuhan and Other Cities?

Foreign businesses look at China as a country where thousands of new COVID-19 cases are being reported every day, but the situation in most cities has started to calm down.

At present, the newly confirmed cases of Coronavirus infections are mainly concentrated in Wuhan, but have since been steadily declining in the area of Hubei and other provinces. According to the data from the National Health Commission on February 24, Hubei has identified 499 new cases, of which 464 cases were located in Wuhan. 

New Confirmed Cases COVID-19 in Wuhan

(The dramatic rise cases on February 12 was due to the revised criteria for confirmed cases i.e., someone who was both a “suspect” and has “imageology features” can be classified as a “confirmed case”.)
New Confirmed Cases COVID-19 in Outside Wuhan

Between February 21 to 24, many provinces have lowered the emergency response from Level I to Level II and III, as shown in the diagram below:
Emergency Response Level Accros Provinces in China

2. Potential Economic & Industry Impacts for Mainland China

Throughout 2020, the Chinese economy is expected to slow in the first half and stabilize in the second half, while the overall impact that COVID-19 has on economic growth is expected to be approximately one per cent. The 2019 GDP growth rate was 6.1% and is estimated to hit 5% in 2020, according to S&P Global Ratings. Although the country's economy will slump in the first quarter, ongoing development of growth policies as well as consumption and production plans may bring opportunities for recovery in the second quarter. Taking reference to the SARS situation, our analysis is shown in the following table:
Economic and Industry Impact Due to COVID-19

COVID-19 Impacts on Key Industries

a) Direct impact : Real estate, transportation, accommodation, tourism, and other industries are expected to recover soon after the outbreak is over.

b) Indirect impact:Financial Services Industry

3. Actions the Chinese Government Has Already Taken

a) Financial Control Policies

The "Notice on Further Strengthening Financial Support for the Prevention and Control of COVID-19" was issued to introduce necessary measures to strengthen financial support for the prevention and control of COVID-19, including the appropriate reduction of loan interest rates, and increase of credit loans to support relevant enterprises to overcome the impact of this epidemic disaster.

b) SME Social Security

Country-Level: The Chinese government has issued several policies, such as:

Province-Level: About 20 provinces have issued various policies to support SMEs. For example, the Beijing Municipal People's Government issued multiple policies in response to the impact of COVID-19, to promote the sustainable healthy development of SMEs.

4. Future Initiatives by the Government

Moving forward, the key focus of the government and the PBOC will include:

The PBOC also aims to relax fiscal and monetary policies which cover the following:

5.Conclusion: What Can Global Investors Expect?

Investors do not need to be overly pessimistic. After the news of COVID-19 broke in January, the Chinese equity market’s A-shares experienced a significant short-term decline. Although A-shares are expected to face downward pressure, the possibility of a continued and substantial plunge is unlikely. The current market valuation is still lower compared to 2003’s SARS outbreak – showing a certain safety margin for investors where valuation will provide strong support:

Based on our analysis, despite the current situation, the market is expected to rebound and operate in accordance with its own long-term logic. Although the COVID-19 epidemic may cause short-term volatility for the equity markets, we believe that it is unlikely to derail the long-term upward trend of the market.

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