Among the Asian economies, the ensuing decline in trade and tourism could impact Thailand, Singapore, Malaysia and Korea the most – in that order, and Indonesia and India the least, wrote analysts at BNP Paribas
in a recent report. “Korea, Japan, Thailand, Hong Kong and Taiwan could be most impacted by supply chain disruptions. Weak investor sentiment in emerging markets
(EM) could affect the current account deficit countries – India and Indonesia,” wrote Manishi Raychaudhuri, head of equity research for Asia Pacific at BNP Paribas.
Given the developments, BNP Paribas
has cut China’s 2020 GDP growth estimate by 1.2 per cent to 4.5 per cent. Their GDP growth estimate for 2020 stands reduced to 2.6 per cent from 3.0 per cent, driven by China (-1.2 per cent), Japan (-0.9 per cent) and important Asian pockets like Korea (-0.5 per cent) and Thailand (-0.6 per cent).
“With China being the world’s second-largest economy and leading trading partner, the economic disruption caused by the coronavirus
to the global economy is believed to be more significant than during the SARS episode. China’s share of global GDP and export, has grown from 8.7 per cent and 6.7 per cent in 2003, to 18.7 per cent and 14.5 per cent in 2018, respectively,” Raychaudhuri said.
Where to invest?
Though the near-term could be marked with volatility till the coronavirus fears start receding meaningfully, BNP Paribas sees Indian markets to be relatively insulated from the coronavirus’ outbreak. Indian information technology (IT) and telecom are the two sectors, according to them, remain safe-haven bets.
“Some markets that are relatively less exposed to the economic contagion arising from the coronavirus outbreak – India is the first one that comes to mind. Indian IT and Telecom fit the bill – the former being the perfect dollar appreciation hedge and the latter benefitting from the likely decline in competitive pressures,” wrote Raychaudhuri.
Another sector he remains optimistic on in the Indian context is consumer staples that has margin support from benign commodity prices. However, he does caution against the steep valuation of stocks in this sector amid a likely slowdown in consumer spending due to potential pressures on household disposable income.