Australian Shares Shed Wealth Amid Coronavirus Pandemic

Coronavirus death toll reached 106, while the total number of confirmed cases climbed to 4,500 in China alone, according to Chinese media.

China’s National Health Commission (NHC) is pegging that the virus could be spread through physical contact, in addition to air transmission. NHC added that the coronavirus strain is 85% similar to severe acute respiratory syndrome (SARS).

Hubei province, which includes Wuhan, in China has been dubbed as the epicentre of the virus, and close to 1,300 people in the province have been infected with a death toll over 24.

Shanghai Stock market is closed since 23 January 2020, and it is set to resume trading on 3 February 2020.

On 28 January 2020, Australian markets started trading lower with the benchmark index (S&P/ASX 200) falling below 7k levels.

Presently, it could be quite premature to quantify the damage caused by the virus or the expected damage that would be caused by the virus. However, it is clear that the Australian-Chinese relations are far advanced than they were in 2003, when SARS crisis took centre stage.

Spring Festival Taking A Hit Means Lower Household Spending

The healthcare outbreak intensified at a time when Chinese were celebrating the Lunar New Year. Also, referred to as the Spring Festival, it is one of the main holiday periods in the country, supporting massive consumption and demand during the festival.

As a result of coronavirus outbreak, it is likely that the household spending could be dampened, as consumers may halt their plans to go out for shopping during the festive season.

According to media sources, it is speculated that around 35 million people have been locked down in homes across eleven cities, which include Yichang, Zhijiang, Qianjiang, Suizhou, Xintao, Chibi, Wuhan, Xianning, Ezhou, Huangshi, and Huanggang. As a result, the output from the manufacturing and services sector in these cities could be lower.

Consumers in other areas might avoid public spaces in a bid to lower the chances of infection transmission, and with travel restrictions in place, the pockets that could be vulnerable include travel, leisure, entertainment, catering, among others.

As these services are a type of luxury than a necessity, the chances are there that consumers may not necessarily spend on such services. A potential slump in demand could also dampen corporations’ capital expenditure plans. However, the magnitude of damage done by coronavirus would be crucial.

The Chinese government would spur its spending in healthcare areas, including vaccines, emergency services and new hospitals.

Meanwhile, the trade & tourism sector could depict a serious damage, as travellers dump their plans to visit China, and the travel ban from Beijing would impact the probable economic activity in the incoming destinations of Chinese travellers.

At the outset, the outrage of coronavirus has the propensity to dampen economic output, and consequently, the 6 per cent GDP growth forecast for 2020 by IMF. However, the quantification of the damage would be assessed at a later stage, while the time consumed to cure the pandemic would be crucial.

Also, retail sales might see a subdued activity, with Wuhan being transport hub and home to auto industry’s plants, the output from the industries remains at risk due to short of labour/production hours.

What’s the Impact on Australia?

Given the level of trade activities between China and Australia, our country might face detrimental consequences. And, Corporate Australia could have new excuses given the pandemic caused by coronavirus for the August reporting season, which could be dreadful for companies focused in China, and neighbouring nations.

Potential Chinese Consumption Slump

With the most important festive period ravaged with fears of infection transmission in China, the consumption in the country could feel the heat as well. In Australia, there are numerous companies that supply meat, dairy products, etc., to China.

However, the extensive damage in China is limited to just below a dozen cities, and in most of the cities, life appears to be somewhat normal with people allowed to go out.

The time-taken by healthcare authorities to develop a vaccine would be extremely crucial, as the extended outbreak is likely to have material impacts on economic activities. Some Chinese focused Australian companies that are dealing in apparel, dairy products, wines, meat, etc, could be exposed to this risk.

Tourism, Leisure and Entertainment

As Beijing has introduced a travel ban on tour groups that could last for two months, the travel and tourism in the country is likely to have adverse implications.

This move by the authorities in Beijing is being seen as a preventive measure to limit the cross-border transmission of coronavirus, which has arrived in Australia already.

The industry had been under pressure this season due to the widespread bushfires across the country, and the ban on Chinese travel groups is likely to add further headwinds to the industry.

In media, it is being noted that travel companies would seek refunds from the Australian companies, which have arranged the air travel and accommodation for the prospective tourists that are left stranded back in China now.

Some areas that could be impacted include airlines, hotels, casinos, cruises and travel agents.

Commodities’ Demand Might See A Fall

In case, the Chinese economy witnesses a fall in economic activity led by a slump in demand, it could further dampen the demand for commodities.

Any demand-side disruption in the Chinese economy for key commodities supplied by Australia could turn out as a headwind for miners. Iron ore supplies from Australia to China could be a casualty. However, the Chinese fiscal stimulus could prove to be a ray of hope.

What Australian Markets Indicated Today (28 January 2020)?

Shares of online travel booking company, Webjet Limited (ASX:WEB) tanked over 13 per cent.

China focused dairy products manufacturer, The a2 Milk Company Limited (ASX:A2M) closed the session with a drop of 2.71 per cent.

Goat milk formula player, Bubs Australia Limited (ASX:BUB) was down just over 3 per cent.

Airlines operator, Qantas Airways Limited (ASX:QAN) lost 5.21 per cent during the day.

Iron ore mining company, Fortescue Metals Group Ltd (ASX:FMG) was down around 7.3 per cent at the close.

Shares of Crown Resorts Limited (ASX:CWN) were down over 5 per cent at the close of session.

The Star Entertainment Group Limited (ASX:SGR) last traded at $4.16, down by 5.23 per cent.

Wine maker, Treasury Wine Estates Limited (ASX:TWE) was down by over 5 per cent at the close of trading session.

Australian mining giants, BHP Group Limited (ASX:BHP) and Rio Tinto Limited (ASX:RIO) sustained losses of over 3 per cent each at the close of trading session.

Lithium miner, Pilbara Minerals Limited (ASX:PLS) was down by close to 7 per cent by the end of trading session.

Fellow lithium miners, Orocobre Limited (ASX:ORE) and Galaxy Resources Limited (ASX:GXY) also made losses of over 5 per cent each during the trading session.

Gold mining trio, Saracen Mineral Holdings Limited (ASX:SAR), Northern Star Resources Ltd (ASX:NST) and Evolution Mining Limited (ASX:EVN) posted gains of over 2 per cent each.

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