Australia is about to become coronavirus ground zero

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Macro Afternoon

There are two angles to examine as coronavirus spreads in China and South East Asia. The first is health related. The second is economic.

Australia is about see a wave of new Chinese tourists and students just as coronavius slips the CCP noose. Some 350k Chinese toursists arrive through the January/February period, a large swath over the next two weeks as Lunar New Year transpires.

Accompanying these short stay Chinese will be another 150k Chinese students arriving or returning for their first semester.

In short, we’re in the midst of mass migration of half a million Chinese as coronavirus erupts.

According to The Journal of Travel Medicine, some 15k of those will be directly from Wuhan, the current epicenter of the outbreak, direct to Sydney and Melbourne alone. Add whatever number you like from other Chinese cities.

It’s fair to say that coronavirus is going to arrive here pretty fast and through multiple points of entry:

If it happens, it could either be anything from a pretty serious bother to an outright catastrophe, depending upon how high is the mortality rate. At the moment, the rate of deaths in the infected is around 2% on offical numbers. But this relies upon dodgy Chinese reporting of case numbers. The real infections are likely much higher and the mortality rate therefore much lower. Nor do we know yet if it is killing beyond the very old and young.

Thankfully none of these numbers is anything like the worst of the 20th century flu epidemics which had a 10% or higher mortality rate. But it’s possibly much higher than regular flu epidemics. And there are other dangers given there is no cure and the risk of mutation.

That’s a nasty possible shock. Enough to spook any sane policymaker.

Which brings us to the second problem, the economic fallout. Stopping this outcome must be a priority. Even for Scotty from Marketing, albeit after he arrives in Hawaii.

So, if the virus is not contained oversees, the disruption to travel will be severe in due course. Tourism and student numbers will fall commensurate with the level of viral severity. Retail will be impacted badly as well. Airlines will be crushed. Every business will be hit as sickies skyrocket.

There is another possible point of economic contagion, if you’ll pardon the pun, even if the virus is prevented from arrving or spreading in Australia. We had an example of it yesterday.

Because the virus is centered on China, Australian markets will be extra sensitive to the newsflow. The Chinese update around lunchtime yesterday dropped the AUD 15pips and triggered equity losses plus a bond bid.

Expect this to get worse and all coronavirus newsflow to disproportionately impact Australian assets.

If China is forced to replay its draconian SARS containment of 2003, which we appear to be in the early stages of so far, then expect a worldwide market rout. SARS is thought to have cost the Chinese economy roughly 1.5% of GDP. If that happened today over six months then I expect it would pop the global equity bubble with Australian assets at ground zero. From Sinocism:

So much for a slow glide into the Lunar New Year holiday. The official count (CGTN) of confirmed cases of the Wuhan virus is now over 300, with 6 deaths.

There is of course a lot of suspicion that the true numbers are much higher, and that the Wuhan government and maybe the Hubei provincial government have been trying to cover things up. The odds they were are not low, and at some point expect a political cost to be imposed upon at least the municipal leadership if not Jiang Chaoliang, the provincial party secretary.

Now that Xi has issued his directive to “put people’s safety and health as the top priority and take effective measures to curb the spread of the virus”, I think it is going to be much harder for the authorities to cover things up. I know, some of you may think I am being naive, but they did learn lessons from SARS, information is much harder to control now, the political risks of a cover-up, and of failure to contain the virus, are extremely high for the Party and for Xi, and the damage to China’s international reputation if it does not share accurate information in a timely manner would not be small.

On the other hand, if the Party Center can show that once it became aware of the magnitude of the problem and used all available measures and resources to check the spread in a timely manner then the propaganda victory, based in reality, would be significant.

I was not in Beijing during SARS but I was there during the 2009 H1N1 outbreak. The measures they can bring to bear, including travel restrictions, temperature checks and mass quarantines, can be harsh but effective. But if you can avoid traveling to China I would do so, as in addition to not wanting to catch the virus you also do not want to be taken off a plane carrying someone else with symptoms and quarantined in a hotel for a week or longer, as people were in 2009.

Thanks for reading, and let’s all hope this is nothing like SARS.

Nobody knows how bad this is yet, or it will get, but it’s obviously a mounting risk.

David Llewellyn-Smith

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