Economic implications of a SARS/Coronavirus outbreak

[SirRumpole]

I expect property prices will be hit hard during the course of this year. A big reason property prices in Australia are high is foreign investment, notably from China. This is going to smash China's economy, which can surely only hurt property prices. And of course, the world's economy will be hit pretty hard by this. You don't shut down half of China and a good chunk of the rest of Asia without causing economic harm, even if the cause is nothing. Global tourism is going to be smashed this year, which reduces the demand for accommodation (when people are on holiday they occupy twice as much accommodation as usual). People aren't going to be as keen to go out to a movie or restaurant or sport event (Olympics will probably be cancelled, they're still reluctant to say it but c'mon, it's pretty obvious), plus all the other economic hits I could list. A lot of them are specific to housing. And if a percentage of the world does get knocked off by this virus, that's whatever number less people needing housing, and housing demand is relatively inelastic relative to population, while houses aren't going to be destroyed by the virus.

I'm not sure how bad it will get, but I think it'll make 2008 look like dropping a $20 into a drain, and housing will be significantly hit.

On the other hand, there could be a lot of Chinese and other Asians (Sth Koreans, Hong Kongers, Indonesians) seeking a safe haven here which will drive up prices.

 

[againsthegrain]

On the other hand, there could be a lot of Chinese and other Asians (Sth Koreans, Hong Kongers, Indonesians) seeking a safe haven here which will drive up prices.

I don't think there can be a safe haven as its official now its a worldwide pandemic

 

[Knobby22]

As per of his war on science. Trump had cut the US Centre for Disease Control by 9% and just this month proposed slashing it by a further 16%.
He shut down the US Complex Crisis fund.

This is no tirade of Trump - the reason I am mentioning this is that due to his actions there are only three test kits in all of America to test for the virus. They have only tested 426 people! They have no idea how many Americans have the virus!!! It could be thousands already.

 

[fergee]

A lot of people everywhere do not seem to understand what is going on with Coronavirus, as it is a true Black Swan that has hit a complacent world.

We could defeat it, and everything would go back to semi normal, with a recession the result of the damage already caused. That seems to be the thinking of most, the overpriced markets were due for a correction and we have had the needed catalyst to send them down into bargain territory.

Are we there yet?? I'm seeing the technical indicators way oversold, plus stocks that have reached support levels and in quite a few cases breached them.

This event is unlike the GFC, where some people in charge just decided to create a whole lot of money out of thin air to solve the problem. Also it is unlike Y2k, that was a non event, or the Asian currency crisis of the late 90's, etc, etc.

This time is different, because the problem cannot be solved by printing money, yet that is what many are expecting to happen.

What I'm feeling is that there is a possibility we are in the middle of an event like 1987, where markets crashed in a short period of time. There are also some uncanny resemblances market wise.
In 1986 the S&P500 low was ~229 points, with the '87 high being ~338 points, before the crash.
In very late 2018 the S&P500 low was ~2355 points, with the '20 high being 3393.

Back in '87 the markets were very overpriced, just like now, and after the initial sell off people bought the dip because all the indicators were way oversold. 1987 taught those of us involved in markets that anything can and will happen. Safety is always paramount in markets.

I've been 85% cash recently, been stopped out of BBOZ twice in the last 2 weeks (including last Thursday within 1c of the bottom), but went long BBUS which is well in the money. I've had these as a hedge against my long term stocks (small amount) that I still hold.

Just to lighten the mood, againsthegrain's comment ...

"I know 2 people one in Qld one in Vic" can I suggest you get out more, after the coronavirus.

@brty This was a great post! Cheers

Thank you for passing on your experiences to us "slightly" younger blokes that weren't born or still in school at the time. Those price levels are uncanny X10!

I also think it currently looks more akin to a 1987 event, from looking at the charts, but Im picking it will diverge from that pattern down the road to create its own form.

Although I have felt the markets have been over cooked for a few years now I also think the 2020's will be an amazing decade to invest with the emergence of the Space industry, electric cars and all the other exciting new technology that is coming out. Just my

 

[sptrawler]

I expect property prices will be hit hard during the course of this year. A big reason property prices in Australia are high is foreign investment, notably from China. This is going to smash China's economy, which can surely only hurt property prices. And of course, the world's economy will be hit pretty hard by this. You don't shut down half of China and a good chunk of the rest of Asia without causing economic harm, even if the cause is nothing. Global tourism is going to be smashed this year, which reduces the demand for accommodation (when people are on holiday they occupy twice as much accommodation as usual). People aren't going to be as keen to go out to a movie or restaurant or sport event (Olympics will probably be cancelled, they're still reluctant to say it but c'mon, it's pretty obvious), plus all the other economic hits I could list. A lot of them are specific to housing. And if a percentage of the world does get knocked off by this virus, that's whatever number less people needing housing, and housing demand is relatively inelastic relative to population, while houses aren't going to be destroyed by the virus.

I'm not sure how bad it will get, but I think it'll make 2008 look like dropping a $20 into a drain, and housing will be significantly hit.

I agree with most of your post, except a lot will depend on how well Australia and New Zealand cope with it, IF we go through with the appearance of being a relatively safe haven, house demand in Australia NZ will go through the roof.
The wealthy Chinese will be wanting to get out of there ASAP and will probably only want to visit on webcam.
Having said that I doubt anyone will be lucky enough to miss the virus, one way or another.
Just my opinion.

 

[Smurf1976]

Regarding the share market, I noticed today that there was a notice added to CommSec to the effect of "we're experiencing an abnormally high volume today so if you phone then you may not get through". That wasn't the exact wording but that's what they were saying, unusually high volumes.

This tells me that small investors are taking note, it's not simply institutions, robots or index funds moving the market.

 

[sptrawler]

Australian miners may have a huge problem, the iron ore and just about any other raw material, may well get turned back IMO.
The Chinese have a track record of saying, "what contract, things are now different, we need another contract" with their manufacturing throttled back, I doubt they will want to keep receiving raw materials.
Just my opinion but I am keeping a wide berth of the miners ATM, unless they become screaming buys, which IMO wont happen untill China says enough.
Like I said it is just my opinion, as a long term holder, not a trader.

 

[explod]

Thinking of going back on the smokes, will enhance my party under the sunset tree.

 

[fergee]

I agree with most of your post, except a lot will depend on how well Australia and New Zealand cope with it, IF we go through with the appearance of being a relatively safe haven, house demand in Australia NZ will go through the roof.
The wealthy Chinese will be wanting to get out of there ASAP and will probably only want to visit on webcam.
Having said that I doubt anyone will be lucky enough to miss the virus, one way or another.
Just my opinion.

I could imagine if that hypothetically happened, safe haven or "exclsuion living" buying as a reason, that Tassie could would get a bump in house prices. I couldn't think of a better place in Aussie! NZ I would be thinking Stewart Island or McKenzie country or Fjiordland would be my picks.

 

[explod]

I could imagine if that hypothetically happened, safe haven or "exclsuion living" buying as a reason, that Tassie could would get a bump in house prices. I couldn't think of a better place in Aussie! NZ I would be thinking Stewart Island or McKenzie country or Fjiordland would be my picks.

Some US elite have taken up holdings in upper areas of the NZ South Island for some years now.

 

[fergee]

Some US elite have taken up holdings in upper areas of the NZ South Island for some years now.

They have been buying up "doomsday day" bunkers for years now. Not just that because they bought so much property/investments they get a NZ passport to boot!

Youtube has a vice episode about it, which to be honest isn't very good, but there's a lot of other info online about it.......I wonder if the owners are kicking it there now in self isolation?

 

[Smurf1976]

Just went to the local supermarket to buy a few things.

Took a wander around looking to see if anything looked to be running out bearing in mind this issue. Only thing I spotted was paracetamol tablets - Panadol and various other brands were still in stock but well back on the shelf as though rather a lot have been sold today. That makes some sense if there's a modest level of preparing going on.

 

[macca]

I guess it does not hurt to store a few non perishable food stuffs, cleaning products, sanitizers and booze.

If it gets really bad us old fellas were taught during the cold war to get roaring drunk then bend right over and kiss your ass good bye

 

[Dona Ferentes]

Only thing I spotted was paracetamol tablets - Panadol and etc.

I read (can't source) 50% of analgesics are Made in China

 

[joeno]

Now that COVID's spread into Europe guess it's NOT a big deal now. It's just as harmless as the flu according to the BBC and Italian news and American news.

Something something trying to cause instability/panic with rising Asian "communist" threat. But the bull**** doesn't stick once it hits the fan and splatters everyone. LOL

 

[qldfrog]

i

Just went to the local supermarket to buy a few things.

Took a wander around looking to see if anything looked to be running out bearing in mind this issue. Only thing I spotted was paracetamol tablets - Panadol and various other brands were still in stock but well back on the shelf as though rather a lot have been sold today. That makes some sense if there's a modest level of preparing going on.

Impossible to find masks at bunnings or hand sanitisers at woolies today

 

[fergee]

Now that COVID's spread into Europe guess it's NOT a big deal now. It's just as harmless as the flu according to the BBC and Italian news and American news.

Something something trying to cause instability/panic with rising Asian "communist" threat. But the bull**** doesn't stick once it hits the fan and splatters everyone. LOL

Hey man I don't agree with what you have to say but....... you have the right to freedom of speech too so paint your reality what ever colour you want.

 

[Sdajii]

On the other hand, there could be a lot of Chinese and other Asians (Sth Koreans, Hong Kongers, Indonesians) seeking a safe haven here which will drive up prices.

Definitely, but they will be outnumbered by lost tourism etc.

I flew from Singapore to Melbourne earlier this week, usually there would be plenty of Australians on such a flight but looking around the plane it seemed to be about 2% Australians, the rest I'd estimate at around 1/3 wealthy looking Indians and 2/3 wealthy looking Asians, many of whom were no doubt looking for a safe haven, and I'd say most of those hadn't really thought things through (they can't stay in Australia indefinitely at least in most cases, so 'escaping' in the early stages is silly, but hey, people are silly). I was in Thailand for some of February where people from many countries have come to escape the virus. Not that Thailand is a good place to do so, but some people seem to think so, and Thailand is currently desperate enough to let just about anyone in (their economy is heavily reliant on tourism, and their tourism industry was severely down due to internal issues, and then Mr. Corona came and was able to utterly raze the already weakened industry).

Other posters do raise a potentially valid idea about safe haven buying by the ultra wealthy Chinese etc. Whether that will be a bigger force than an overall property crash is hard to say. I'd still be tipping a crash, especially if/when Australia starts having its own casualties. But, if our Corona friend isn't severe enough to overwhelm the Australian healthcare system it's definitely possible we'll see quite the rush from the world's ultra rich, especially from India, China, Japan, etc.

 

[Value Collector]

These three charts show some pretty positive trends in regards to the actual virus figures.

 

[MrChow]

I'm still rather ho hum about this (Unless you live in Wuhan 80% of cases in 0.002 of the world population seems quite concentrated).

I'd be very surprised if markets aren't back to their highs by end of year.

China businesses are reopening as new cases decline, combined with a total of 1 'in country spread' in the U.S so far.

To back it up we're on the internet hypothesising about theoretical financial effects. If there's a threat worthy of recession this thread would end and we'd be talking to people in real life about survival.