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How the coronavirus outbreak in China could hit manufacturing

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Via CNBC

People wait in a queue to buy masks at a pharmacy in Hong Kong on January 30, 2020, as a preventative measure after a virus outbreak which began in the Chinese city of Wuhan.

DALE DE LA REY | AFP via Getty Images

Expect supply disruptions as China takes measures to contain an ongoing coronavirus outbreak, says REYL Singapore’s Daryl Liew.

“The sharp action taken by the Chinese government to basically delay workers going back to work is definitely going to cause some supply disruptions,” Liew, who is chief investment officer at REYL Singapore, told CNBC’s “Street Signs” on Thursday.

With the virus infecting at least 7,700 and killing 170 in China, authorities have taken measures to curb the disease’s spread. At least three provinces have declared that businesses, other than some essential industries, are barred from resuming work before Feb. 10. In Hubei province, where the majority of cases have been found, resumption of local business has been delayed till at least Feb. 14.

A “big question mark” remains over how long the disruptions could last, Liew said, as it depends on whether the situation can be contained.

That comes as manufacturing numbers were showing “some normalization,” he added.

“It’s a bit of a lagging indicator but the December ISM numbers have all been broadly positive, especially for Asian economies … which suggest essentially that global trade is normalizing. It’s not bouncing back significantly but it is rebounding,” Liew said, adding that that has translated to better manufacturing numbers.

“The current virus … and the extended shutdown in China will definitely put a crimp to that,” Liew said.

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Potential impact on US businesses

The outbreak has sent tremors across markets in Asia and beyond in recent days, as investor concerns about the potential economic impact grow.

“We’re concerned that there could start to be … some overall impact on the Chinese economy which could lend itself, from a sentiment perspective, to greater concerns … for the global economy,” Shannon Saccocia, chief investment officer at Boston Private, told CNBC on Thursday.

That could spillover into the performance of U.S. businesses at a time when the “strain of lower production” is being felt stateside, Saccocia said.

“If we start to see that upended by the fact that factories aren’t opening and … we’re not able to get the components that we need from the Chinese economy, you know, that could … certainly slow any sort of manufacturing reacceleration that we were hoping for in the first two quarters of 2020,” she said.

The Chinese city of Wuhan, the capital of Hubei province, is the epicenter of the outbreak, and authorities have placed multiple cities in the province under partial or complete lockdown. Wuhan and the surrounding region of Hefei and Jiangsu are major manufacturing hubs that work with American firms. But they have also been shut down due to the virus outbreak.

“As an investor, you need to understand … where the supply chain starts and ends and factor in to your expectations … for those companies,” Saccocia said, though she acknowledged that it’s “a little early” to “paint the picture that half of the year is going to be meaningfully lower from a growth standpoint due to this virus.”

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— CNBC’s Evelyn Cheng contributed to this report.


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