It’s time to improve investment portfolio
The increase in amount of coronavirus infections is a reminder of the 2003 SARS epidemic. The only that cheers up is that a lot has changed for the better since then. This time, the Chinese authorities reacted faster to the virus and introduced quarantine mode. In addition, the population and health organizations were better prepared. People have hope that the coronavirus will be less deadly, but nevertheless they have doubts, since the spread of the virus is higher.
However, there are many more changes that will negatively affect the economy due to pandemic.
Since then, China has been significantly developed, its GDP is 21% of the world level (9% in 2003), and exports amounts to 13-14% (5-6% in 2003). If in 2000s, China just joined World Trade Organization, now its economy takes the second place. In addition, China has increased its consumption of raw materials.
It is worth considering the speed of economic development in that period. It was associated with the entry of China into WTO, as well as with the country’s recovery from the Asian crisis of 1997-1998. Over the past ten years, global economic growth has slowed. At the beginning of the second millennium, it was in better condition due to the United States escape from the 2001 recession.
Over time, the drivers of economic development have changed. Previously, the stimulus was industrial exports, infrastructure development costs, but now the main share of influencing factors lies in the services sector and consumer spending. They are the ones who will suffer first from the onset of panic amid the spread of coronavirus.
Since the 2000s, the situation with debts in Chinese economy has worsened. Corporate debt grew to 165% of GDP, and the total one amounted to 250%. If previously external debt totaled several hundred million, now it is $2 trillion. In 2019, the maximum number of bankruptcies among Chinese companies was fixed. Declaring a pandemic could lead to a credit crisis in China.
To avoid significant losses, investors should review their portfolios and get rid of high-risk assets. Especially which showed a significant increase in the interest of a large number of people. The assets of Chinese organizations and the shares of tourist operators will also be dangerous.
It is worth remembering that after passing the peak of the disease, the market will recover in a V-shaped curve. The main triggers indicating the deterioration of the situation will be launched programs to stimulate the economy by the US Federal Reserve Service and the Central Bank of China. Perhaps you should pay attention to the formation of long-term positions in German government bonds.