• UBS set out their positive investment case for China even with the coronavirus outbreak.
• They assume the containment efforts have worked, and that risk appetite remains.
• The swift response leaves a large near-term GDP impact, this also means a sharp snapback once conditions have normalised.
• Despite the virus, China will continue its structural shift to a more domestic-focused economy.
• Consumerisation, premiumisation and disruptions in tech are themes that will all play out in the next 10-20 years. One lasting impact from the coronavirus he identifies is a possible acceleration towards greater automation.
• Markets will likely ignore bad Q1 numbers and may try to calculate an ex-coronavirus equivalent. But if weakness spills into Q2 then earnings forecasts will be cut more broadly.
Why does this matter? China now accounts for almost one-fifth of the global economy (ppp basis), more than double the share during the SARS outbreak in 2003. Whether or not the economic disruption from the coronavirus is contained to Q1 is therefore crucial for global growth prospects this year. How the authorities handling of the outbreak is perceived is also important for domestic political stability and for China’s global ambitions. [Bullish China]
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