The Black Swan

Daltium Opinions

Like a plot from Tchaikovsky’s ballet score, we are now witnessing the dreadful side of the Coronavirus epidemic that moves fluidly from bad to worse to ugly; and the unthinkable.

For one, we are not truly aware of how people got infected or have died – as facts can be suppressed by Chinese authorities as not to exacerbate panic and pandemonium. What they want us to believe is that the infected are getting treated - and are coming out of clinics and hospitals with happy faces. Bravo, this episode is over and done with.

But the brutal truth is that this Coronavirus can [will] be more disruptive that markets are currently accounting for. Global supply chains are grinding to a halt as many raw materials are sourced from China. Travel, tourism, and the aviation industry are reeling from the consequences of having no Chinese clients taking vacations or moving in throngs of packaged tours as they have recently made up a sizable number of tourists and shoppers. We can also see intermediate goods put on hold as most come from China.

A bad scenario for this Wuhan Virus is if such an outbreak can be contained in the first quarter, with China’s GDP growth for 2020 dropping to below 5%, hoping that production can catch up during the 3rd or 4th quarter.

A worst-case scenario would have this virus outbreak extending beyond the 1st quarter, and China’s GDP growth could then fall below 4% in 2020. Nope, no production recovery can be seen in the last quarter as well. In this scenario, China will further disrupt global supply lines and will take the whole world into a pronounced deceleration. No imports and no travel for everyone, as well as the Chinese. Terrible for tourism and the aviation industry, as well as bad for business in high-end hotels and shops in London, New York, Paris, and other places renowned for luxury shopping.

In an ugly scenario, the virus spreads beyond China and is felt across Asia. Its effect will be just like the 2008/2009 Global Financial Crisis and the SARS outbreak of 2003 but combined. The world will blame China for failing to contain the virus. Governments will shut their doors and ban travel, movement, and activities that include import and export – like a stranded cargo ship that will not be allowed passage through

In an unthinkable scenario, think of those Korean or Hollywood movies ala zombie apocalypse or Train from Busan, where the virus mutates and becomes a truly global pandemic. What else is there to do but shut the doors and stay indoors. Economies and market activities will be on shutdown, and the military takes over. The world is praying for a Brad Pitt (from the movie World War Z) to bring an antidote to the plague that could easily wipe out half of the population.

But this is all a result of our wild imagination.

Going back inside China, how the government responds to this situation is being carefully watched and monitored by every Chinese. Growing dissent and resentment are fermenting. It is getting cold and fast approaching that winter of discontent.