In this briefing:
- How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?
- Governments and Policies Adapting to Critical Known Unknown
- Costs of and Response to COVID-19
- Huge Short Covering Last Week
- Fault Lines and Positive Surprises: Buy Car Makers
The main subject of this report is as follows: “How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?” Certainly, COVID-19 will change the way people behave. The longer that COVID-19 lasts and the longer that millions of people are under lockdown, their behaviors will change further, potentially making them into a habit and this would have a tremendous impact on the global economy.
We are specifically interested in this topic because as millions of people around the world undergo “lockdown” for a period of one to three months, this could have an enormous behavior change once this lockdown period ends.
The change in behavior patterns (especially related to consumer spending) in the post COVID-19 world would also have a big impact on whether the global economy/stock market can turn around quickly (such as after the Great Financial Recession in 2008/2009) or whether the turnaround lasts longer (such as after the Internet tech/crash lasting for nearly 3 years from 2000 to 2002).
We argued in Lack of US market & macro volatility both reassuring and troubling that “the market’s willingness to look through domestic political and geopolitical events suggests that only a significant exogenous or endogenous shock currently beyond markets’ radar screens (an “unknown unknown”) is likely to really move the needle”.
That unknown unknown, a “black swan” event, has turned out to be a global viral pandemic on a scale not seen since the Spanish influenza pandemic of 1918-1919.
The coronavirus outbreak is now three months old but governments, central banks, corporates and households still face a critical known unknown, in our view, namely the total number people who had the coronavirus, acquired immunity and are no longer contagious and who currently carry the coronavirus and are thus potentially infectious.
This includes people who have not been clinically tested – more than 99.9% of the world’s population. We estimate that only 3.3 million people (4 out of every 10,000) have been tested for coronavirus, although testing data are patchy and often released with a lag. The main reason so few people have been tested is the still limited capacity to rapidly and reliably test a very large number of people.
In econometric terms that is a very small sample from which to extrapolate country-wide trends. One implication is that the actual mortality rate may be far smaller than reported.
The high number of tests-per-capita conducted in countries such as South Korea has been posited as an explanation for their relatively low number of coronavirus-related deaths. However, other factors have likely been at play, including the timing of clinical tests, demographics, national health systems’ capacity to treat infected patients and the timing and efficacy of self-isolation and self-distancing policies, including country “lockdowns”.
For now what policy-makers know they don’t know will likely continue to influence country-specific containment plans, as well as domestic measures to support economic growth while ensuring the functioning of financial markets.
As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.
We take a look at the latest SFC data released today evening on short position reporting in Hong Kong for the week ended 20 March 2020.
Total short notional in Hong Kong decreased from HKD 430.33bn to HKD 382.05bn over the week due to lower stock prices and short covering.
The largest short positions for the week were built in AIA Group Ltd (1299 HK), China Construction Bank H (939 HK), Ping An Healthcare and Technology Company Limited (1833 HK) and CNOOC Ltd (883 HK) while shorts were covered in HSBC Holdings (5 HK), Semiconductor Manufacturing (981 HK), Ping An Insurance (H) (2318 HK) and Galaxy Entertainment Group (27 HK).
Shorts decreased in all sectors led by Financials (US$375m), Real Estate (US$272m), Consumer Discretionary (US$216m), Information Technology (US$162m) and Consumer Staples (US$136m).
Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital.
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