It is highly likely that the economic consequences of the Wuhan coronavirus is being vastly underreported. The effects of the Wuhan coronavirus has hit the Shanghai Stock Exchange, with worries about the virus stymying growth in China dropping the SSE by more than 14% earlier this month before rebounding slightly recently. Companies that will likely be materially hit by negative economic consequences of the Wuhan coronavirus, because of large production facilities in China or significant dependency upon a Chinese market, include Apple, Tesla, and Starbucks (which temporarily has shuttered more than 2,000 of its 4,000+ stores in China), and hotel chains like Hyatt, Intercontinental and Shangri-La hotels.
These aforementioned hotels have allowed customers to cancel their reservations in China at a 100% reimbursement rate extended time periods. This corporate decision, though admirable, is self-explanatory for its negative impact on the bottom line of these hotels. Furthermore, Starbucks had projected China as its top growth market 2020, so Starbucks may be hit particularly hard by the negative economic consequences of the Wuhan coronavirus, especially if the virus persists for a long portion of this year as a credible threat. In addition, spirits manufacturers with large exposure to China, like Remy Martin cognac maker Remy Cointreau (RCO.PA) and Chivas Regal whisky maker Pernod Ricard (RI.PA), are all likely to experience hits to their Q1 2020 revenues and profits, at a minimum, due to numerous cancelled Lunar New Year celebrations in China that typically provide a significant lift to alcohol sales. And though the focus has been on lost revenues in China, due to the fact that the Chinese consumer market constitutes more than a quarter of all global alcohol sales, if the coronavirus spreads throughout Asia, spirits manufacturers will lose a tremendous amount of revenues from bar and club sales throughout Asia.
Having lived in Asia for many years now, I have observed the massive volume of alcohol consumed by Asians. Though many eastern European citizens top Asian citizens per annual alcohol consumption per capita, the bottle culture that exists in the wealthier Asian nations, in which youth and adults tend to order bottles of liquor versus individual cocktails during social events, the per capita spirits consumption in Asia tends to be some of the highest in the world. For example, in Thailand and South Korea, more expensive spirits consumption as a percentage of total alcohol consumption is nearly 70%, whereas in other nations, beer consumption constitutes the majority of alcohol consumption per capita. Therefore, if the coronavirus spreads to neighboring Asian nations from China, the dent in revenues and profits from spirits manufacturers could become markedly more significant this year as people will continue to avoid crowds and entertainment venues, and the negative economic consequences of the Wuhan coronavirus may be strongly felt for months to come.
Though I believe the hysteria surrounding coronavirus is overblown by the media, I likewise believe that the potential future negative global economic consequences of the Wuhan coronavirus is simultaneously being undersold. To begin, we can almost be certain that the official State narrative coming out of China regarding the infection rates and number of deaths is grossly underestimated, given the numerous anomalies regarding the reporting about this data. To begin, there is great contention over the source of this virus, with some reports speculating that the virus was a bioweapon developed in Wuhan’s BSL (BioSafety Level) 4 laboratory that escaped from the laboratory. As of now, this is unconfirmed speculation, though some prominent people, including Dr. Francis Boyle, the person that drafted the 1989 Biological Weapons Anti-Terrorism Act, have postulated that the Wuhan coronavirus appears to be a bioweapon. Though Dr. Boyle possesses a considerable academic pedigree, with an AB (1971) in Political Science from the University of Chicago, a JD degree magna cum laude from Harvard Law School, and AM and PhD degrees in Political Science from Harvard University, to be fair, his degrees are also unrelated to immunology and virology.
In any event, various sources have reported that Patient Zero did not have contact with the wet seafood market in Wuhan, which is the official State narrative for the origination of the Wuhan coronavirus. With no release of the identity of Patient Zero as of yet, I believe that this speculation has yet to be confirmed by any report online. However, since there has been no concrete proof of the official State narrative as well, the mainstream mass media should refrain from reporting this speculation as fact, a claim that they have been inferring as fact in their reporting from the start of this pandemic.
Regarding infection and mortality rates, we can almost be certain that both of these rates have been massively underreported by Chinese authorities from inconsistencies in their own reported data. For example, Two different reports from Chinese state media issued this month contained contradictory statements regarding the supply of diagnostic kits for potentially infected patients in Wuhan. Tian Yulong, the chief engineer of the Ministry of Industry and Information Technology, announced that the daily output of diagnostic kits to assess infection had reached 773,000, 40 times the number of suspected infections and that Chinese medical facilities subsequently possessed “a sufficient supply of diagnosis kits.” However, Li Lanjuan, an academician of the Chinese Academy of Engineering and one of the medical experts at the National Health Commission, stated in a visit to Wuhan a couple of days later, that “there [was] currently a shortage of diagnosis kits in Wuhan. Therefore, not everyone [who exhibited symptoms of the novel coronavirus could] receive the diagnostic test.” Therefore, Lanjuan’s implication was that a daily production of 773,000 diagnostic kits, a large portion of which would almost certainly be distributed at the ground zero location of Wuhan, was inadequate to serve the potentially infected population in Wuhan.
And finally, yesterday, the Chinese internet company Tencent reported the below screenshot of total deaths and infections in China from the Wuhan coronavirus respectively at about 25,000 and 154,000 on 1 February, figures that were not even close to the official State released data of only about 300 deaths and 14,000 infections the following day. Later, Tencent revised the data to fit the official numbers, but no one knows if the earlier reported data by Tencent were the real numbers or a simple mistake of misreported data. However, given numerous other anomalies in reported data originating from Wuhan, we can be fairly certain that the official data is significantly underreporting the real numbers.
As I stated earlier in this article, the Wuhan coronavirus has the potential, at this point, of spreading very quickly in nations outside of China if infected, asymptomatic carriers enter crowded areas and silently disperse the virus in densely populated regions (carriers can remain asymptomatic for up to two weeks and infect other hosts). And if this happens, then the Wuhan coronavirus can potentially inflict significant damage economically to many global companies outside of China. The eerie videos posted online by local amateur journalists of near empty streets in Wuhan, a city of 11 million residents, and deserted streets in Shanghai suggest that this virus is much more serious than is being reported by the official data. Consequently, I believe that the negative economic consequences of the Wuhan coronavirus being limited to China and the largest companies that depend upon China for production and clientele will not contained to just this segment of the global economy in the coming months.