When a Giant Economy Gets Sick
The 'Year of the Rat' is almost here... China's 'Wuhan virus'... Revisiting SARS fears... When a giant economy gets sick... It's not time to sound the alarm...
The 'Year of the Rat' is just three days away...
On Saturday, China will start celebrating the Lunar New Year with the beginning of the "new moon" phase. The festivities will continue for roughly two weeks... until the moon is full.
It's usually a time of excess and extravagance for the Chinese people. But with what's happening in the country right now, this year's celebration might be much more subdued...
By now, you've probably seen the headlines...
A new, deadly virus recently broke out across China.
As I (Corey McLaughlin) write, the previously unknown "Wuhan virus" has reportedly killed 17 people in the country. And as we go to press today, Chinese health officials confirmed that the virus has infected more than 500 others since early last month.
The virus gets its name from the central Chinese city of about 11 million people where it reportedly originated... specifically from meat and seafood markets in the region.
Coronaviruses are common among animals. And according to the U.S. Centers for Disease Control and Prevention ("CDC"), in rare instances, they can be transmitted from other animal species to humans. In many cases, these viruses have symptoms similar to the common cold – like a runny nose, cough, sore throat, headaches, and possibly a fever that lasts for a few days.
But in the past, coronaviruses have caused more severe – and even deadly – illnesses... like "severe acute respiratory syndrome" (better known as "SARS") in the early 2000s.
Mostly concentrated in China and Hong Kong, SARS killed 774 people and sickened more than 8,000 others across 37 countries from November 2002 to July 2003.
Researchers believe the number of folks infected with the Wuhan virus could be much higher than reported...
Late last week, a study from researchers at London's Imperial College said the actual number of infected people could be more than 1,700... just in the city of Wuhan alone.
And the timing couldn't be worse...
In the next few weeks, people in China are expected to take a combined 3 billion trips to see family and friends for New Year's celebrations, vacations, and other events during the country's annual spring travel season, called "Chunyun."
It's like Thanksgiving travel in the U.S., but on steroids. Five times as many people travel... and it lasts for five weeks. It's often called "the largest annual human migration in the world."
In other words, it's a terrible time to prevent a deadly virus from spreading.
In fact, the Wuhan virus is already spreading from China – and it just showed up on U.S. soil...
Other cases have been reported in Japan, South Korea, Vietnam, and Thailand. And just yesterday, the CDC confirmed the first U.S. case... a resident of Washington state who experienced pneumonia-like symptoms about a week ago, after returning from Wuhan.
That's enough to raise worries about a possible epidemic... and for the more alarmist types in the mainstream media, a "pandemic" that spreads across multiple continents.
Meanwhile, U.S. officials are doing what they can to keep it from becoming a problem here... CDC and Homeland Security officials announced last Friday that passengers arriving on flights from Wuhan at major airports in Los Angeles, San Francisco, and New York would be screened for the virus.
The outbreak has understandably revived memories of the deadly SARS epidemic...
Yesterday, our international editor Kim Iskyan – who lives in Singapore – provided an update on the current situation for our friends at the Stansberry NewsWire.
Kim compared it to the outbreak of SARS... which in addition to claiming hundreds of lives also tanked the Asian tourism industry and temporarily hurt some major stock markets. As he wrote in the NewsWire...
Over here in Asia, any talk of pandemics immediately evokes memories of SARS, which swept through Asia in 2002-2003.
SARS killed nearly 800 people, mostly in China and Hong Kong, and – as explained in a 2014 paper by Kai Ostwald, a Canadian academic on the topic – "caused widespread disruptions to economic activity, leading to significant declines in several sectors and an overall slowdown in the region's economy." ...
As Kim noted, the World Travel and Tourism Council estimated that SARS' impact on travel was four to five times bigger than the effect of the September 11, 2001 terrorist attacks on travel in the U.S. Overall, SARS generated economic losses somewhere in the range of an estimated $20 billion to 100 billion, according to the paper from Ostwald. More from Kim...
China's GDP growth in the second quarter of 2003 was an estimated 3.1% lower than it would have been otherwise... and Hong Kong's economy contracted by 0.5%, after growing by 4.5% in the first quarter of 2003 – a decline almost entirely attributed to SARS. Hong Kong's stock market hit a four-year low during the second quarter of the year.
That's what people here in Asia usually think of as the worst-case scenario for a fast-spreading virus. (When I was in Hong Kong last month, two people I talked with described the streets "as quiet as during SARS" when no one went anywhere for fear of getting on the wrong side of marauding protestors, or angry cops.)
It's hard to imagine anyone wants to see that kind of scenario play out again.
It's important to stay level-headed when it comes to deadly viruses...
It isn't easy to stay calm when you're constantly seeing images on the news of people wearing masks at airports and on the streets... and hearing that the U.S. citizen infected with the Wuhan virus is currently in isolation.
But if you actually read the details, you'll see it isn't as dire as the headlines say...
The man in Washington state, who is in his 30s, is in "good condition." Chinese scientists have indicated that this virus is not as deadly as SARS. And according to the CDC, the risk of the virus spreading to the American public is "low."
We're reminded of years-old advice from our resident medical doctor, Dr. David "Doc" Eifrig. In the April 2009 issue of Retirement Millionaire, Doc wrote about the overreaction to "swine flu"...
The headlines and pictures would have you think the world is coming to an end. Talking heads on every TV are giving their "expert" opinion on this thing. My god, even the vice president was spouting nonsense on the Today show, telling the audience to stay out of airplanes and subways. What a waste.
And now, government officials want us to call swine flu by its numerical designation – H1N1... Why? To keep average folks like you and me afraid. "H1N1" sounds technical and mysterious, almost spooky. Then they can get more money for their government-sponsored posts so they can keep their jobs.
The U.S. Centers for Disease Control ("CDC") and the World Health Organization ("WHO") are acting as though we face some grave new threat. In fact, these viruses have been documented for thousands of years. (By the way, the WHO has labeled the swine flu a "Phase 5" outbreak, one below a Phase 6 "pandemic." Sounds dicey, until you realize "Phase 5" means the outbreak has been documented in two countries, and Phase 6 simply reflects it spreading to a third.)
Let's take a deep breath and look at the facts...
According to Doc, the facts showed that a person in the U.S. was more likely to drown or to be "struck by lightning after sinking a hole in one" than to die from the swine flu.
And of course, the most relevant question for us today is...
What does the outbreak mean for the global markets and China's economy this time?
In the short term, Stansberry NewsWire editor C. Scott Garliss believes the negative headlines and travel restrictions could cause temporary problems for some stocks. Specifically, Scott mentioned airlines and gaming companies with operations in China.
But looking at the long term, we're seeing some promising news out of the country...
On Monday, the International Monetary Fund raised China's growth outlook for 2020 from 5.8% to 6%, based on the signing of the "phase one" trade deal with the U.S. Scott shared this information, and other recent positive data, with us in a private e-mail yesterday...
And Chinese industrial production for December 2019 rose 6.9%, beating expectations by a full 1%, a big deal that points to a rebound in manufacturing in the country and global growth given China's position in the world economy.
The breaking news of the virus spooked the markets yesterday. But fears eased somewhat today, with Chinese officials being more proactive (calling for travel restrictions) and more forthcoming with information on this outbreak... as opposed to the close-lipped protocol during the SARS epidemic.
And in a show of technological advancement since the early part of the century, Chinese scientists said they had quickly determined the DNA sequence of this new strain of coronavirus. That means they could soon develop a treatment... or even a vaccine.
Plus, the SARS epidemic didn't hurt the markets as much as you might first believe...
China's economy actually grew 9.1% in 2002... and even faster in 2003. The benchmark Shanghai Stock Exchange Composite Index actually went up as the virus spread. You can see what we mean in the following chart...
Here in the U.S., the benchmark S&P 500 Index rallied higher from March to June 2003...
Hong Kong – which was ravaged, as Kim mentioned – took the worst losses of any connected stock market during the SARS outbreak. Its Hang Seng Index lost 18% from its peak. But after the dust settled, it recovered all its losses within three months – and popped higher...
Our point is... unless you're in China... will visit the country soon... or will come in contact with anyone who has recently been there... you don't have too much to worry about yet.
For now, you should simply be aware of what's happening on the other side of the globe.
We also checked in with our resident China bull, Dr. Steve Sjuggerud, and his research team yesterday...
Not surprisingly, analyst Chris Igou said they're monitoring all the latest developments about the Wuhan virus. Steve and his team plan to publish a detailed update on the topic in the monthly issue of True Wealth Opportunities: China tomorrow.
In fairness to Steve's paid subscribers, we can't share all the details of their guidance in today's Digest. However, we can pass along one important point about the situation...
If the panic continues to spread in the coming weeks, it could create a buying opportunity in Chinese stocks. And if that's the case, Steve and his team will be the first to let you know about it.
If you're not already a True Wealth Opportunities: China subscriber, it's a great time to get started... Right now, you can get full access to everything Steve and his team publish in True Wealth Opportunities: China at 40% off the regular price. Learn more here.
New 52-week highs (as of 1/21/20): Becton Dickinson (BDX), Bristol-Myers Squibb (BMY), Blackstone (BX), Western Asset Emerging Markets Debt Fund (EMD), Franco-Nevada (FNV), Fidelity Select Medical Technology and Devices Portfolio (FSMEX), Alphabet (GOOGL), Hannon Armstrong Sustainable Infrastructure Capital (HASI), Huntington Ingalls (HII), iShares U.S. Home Construction Fund (ITB), Johnson & Johnson (JNJ), Coca-Cola (KO), Lennar (LEN), Lockheed Martin (LMT), Lundin Gold (LUG.TO), Lonza (LZAGY), Masco (MAS), Medtronic (MDT), NVR (NVR), PepsiCo (PEP), ResMed (RMD), Sea Limited (SE), ProShares Ultra Utilities Fund (UPW), ProShares Ultra Semiconductors Fund (USD), Vanguard Real Estate Index Fund (VNQ), and Aqua America (WTR).
The mailbag is quiet today. Do you have something to say? As always, you can e-mail your questions and comments to feedback@stansberryresearch.com.
All the best,
Corey McLaughlin
Baltimore, Maryland
January 22, 2020