Wuhan is also the headquarters for a few large industrial companies, including one of the largest automakers in China. At these companies, production will undoubtedly be curtailed until the outbreak comes under control and the factories can resume normal operations.
Declining consumption will hurt retailers—especially those with predominantly brick-and-mortar stores. However,
e-commerce companies may weather the storm well, as consumers shift demand to online retail vendors. Some of China’s online supermarkets and food delivery services have already reported increased usage as shoppers stay away from stores. Investors will need to monitor how different industries and companies will be affected in different ways by fallout from the coronavirus crisis.
Will the Virus Lead to Longer-Term Changes?
During an endless news cycle of unfolding dramatic events, it’s hard to think past the immediate crisis. However, we think that the current events could potentially trigger longer-term structural changes that will affect companies and industries. Indeed, the 2003 SARS epidemic probably helped push the adoption of e-commerce in China and in Asia overall.
What might happen after the coronavirus? Right now, we’re in the midst of the largest-ever experiment of working from home in China and large parts of Asia. Tens of millions of Chinese students are being forced into online learning as schools shut down for extended periods. These experiences could trigger fundamental changes in how people work and how lessons are taught in the education system. If this happens, could we see a decade of growth in the adoption of remote working and learning products? How would the infrastructure for communications networks and data centers change to accommodate higher demand? Questions like these are hard to consider now, but when the immediate danger subsides, they will become more relevant for investors.
As long as the coronavirus situation remains unresolved, we think investors in China should reduce exposure to companies that are directly affected, including in the leisure and travel industries. At the same time, based on experience, a Chinese portfolio should be positioned for the long term and prepared for the possibility of a sharp recovery when the crisis is resolved.