Will China’s post-virus stimulus help or hurt your stock?
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China is planning several stimulus measures to kick start its economy once the coronavirus slows, many of which will support the industries a slew of ASX companies have come to depend on.
The country will initially roll back taxes and fees and will look at permanently lowering both for the long term, Chinese finance minister Liu Kun wrote in a Communist Party magazine on Sunday.
The Party has already promised infrastructure and credit support.
While companies such as Zoono (ASX:ZNO) are making sharemarket hay from the massive leap in demand for hand sanitiser, as are those selling hopes of antiviral drugs and health supplements, others such as those in pain now in the ecommerce, metals, and medical sectors might get a boost from the government’s extra stimulus later.
China’s growth goal for the year was to double GDP per capita from 2010 levels and for that the government needed GDP growth of 6 per cent, says Michal Meidan, director of the China Energy Research Programme at the Oxford Institute for Energy Studies.
To reach this, the government will need to offer something substantial, she says.
The massive disruption caused by the coronavirus outbreak over Chinese New Year, a peak holiday and shopping period, has not only reduced demand for oil, gas and petrochemicals, but also for everything from Cochlear’s (ASX:COH) hearing implants, as people delay surgeries, to Vietnam-based casino Donaco (ASX:DNA) which is suffering from a lack of Chinese gamblers after the land border was closed.
Even the ecommerce sector is not immune.
While it’s said the online grocery and deliveries market is being well used as people quarantine themselves, anecdotal evidence is that more people are cooking at home because they’re worried that chefs and couriers could be spreading the virus, Meidan says.
Furthermore, there are logistical constraints for deliveries as the migrant workers who typically do delivery jobs haven’t come back from their home provinces, leading to higher costs up the value chain.
Meidan is assuming, like China’s medical experts, that the virus will peak in the next few weeks and for businesses to come back online in March, with stimulus to come in the latter part of the year.
But she says there is limited effective monetary stimulus the government can provide.
Most major infrastructure is built already, meaning there may not be much to spur metals and ore sectors; there are already high inflationary pressures in China; and when China offered credit to local governments last year to cope with the US trade war, they preferred to pay down debt than start new projects, which suggests how credit support this year might be used.
Furthermore, lost demand for consumer items, such as foods, transport, or entertainment such as that offered by casinos like Donaco won’t be replaced.
Overall, she expects a severe dent in China’s consumption in the first quarter and while some deferred demand will be released when the virus crisis is over, such as planned surgeries for Cochlear’s hearing implant, lost demand for other products and services such as that in the ecommerce sector will not be replaced.