The steep sell-off in stocks related to the coronavirus has intensified focus on the financial implications of the outbreak. Much of the narrative, especially when it comes to economists and market pundits as opposed to companies, has yet to internalise the significant uncertainties concerning both the known knowns and the known unknowns.
As the virus has spread into several countries – particularly Iran, Italy and South Korea – and brought with it more sudden economic stops, it has become even harder for companies and economists to ignore the mounting damage to supply-and-demand conditions on the ground, let alone the funding challenges that lie ahead for some of the more financially stressed companies in China.
With that, more companies have warned about the immediate outlook for their earnings, and several economists have revised downward their growth projections for the quarter, particularly when it comes to Asia. Meanwhile, doctors are busily collecting data, investigating, consulting and working on vaccines. Yet most seem to feel that they have yet to comfortably get their arms around some of the most important basic elements about this new virus such as transmission rates and incubation periods.
No wonder when I look at the year as a whole I find it hard to predict not only how and when demand will recover but also how well-functioning supply chains will be restored. I am also concerned about the financial outlook of highly leveraged companies and countries, as well as the big overhang of triple-B rated companies over the high-yield market.
Companies appear to have internalised these uncertainties better than economists and markets. All of that leads to me to continue to question the latter’s comforting notion of a rapid V-shaped recovery as opposed to a U-, W- or L-shaped one.
There’s more here.