The sloppy preparation for the coronavirus in South Korea and Italy has sparked selling around the world, especially in those markets and Europe. Interestingly, the Shanghai exchange was just about unchanged, as official data there shows slower growth and more provinces reporting no additional cases of the infection. In Hubei, there were 398 new cases reported, down from 600, on Sunday and tens of thousands a day not long ago.
China will step up stimulus as President Xi urges businesses and workers to get back to work. I think his gentle nudging will get China up to speed sooner, although delays in the supply chain will have a serious impact on their economy and to a lesser extent global economy. There is obviously much suspicion about the numbers out of China, and this morning, looser travel restrictions in Wuhan were canceled after a few hours.
Which brings us to the differences between Italy and South Korea.
Although the cluster of cases aren’t far from Milan, which is the industrial center of the country, the economic impact to the rest of the world is muted. But containment is critical, as Europe is the most densely populated continent on earth. I think the reaction from Prime Minster Conte has been wanting and nebulous.
South Korea is more important as a manufacturing hub, and plays a critical role technically, especially in semiconductor manufacturing. While a large portion of its rising numbers center around a religious sect, there is considerable concern about containment. This is why chip names are taking bigger hits than the broad market.
In the United States, there are still 35 reported cases of infections, but organic growth is contained.
- 14 cases people traveled to China and/or infected by spouse
- 21 cases of repatriated Americans
Recommended
Most of the emails and calls are on what to buy. Of course, we are building our list and salivating to own some names we regrettably missed. On that note, there will be some short-term adjustments on some of the tech names, although long term investment propositions based on demand must be a key factor.
Before focusing on individual ideas, let’s look at key macro test on the downside, especially the need to make a stand around the 50-day moving average.
S&P 500 50-day 3,274 200-day 3,041
NASDAQ 50-day 9,228 200-day 8,366
Dow Jones Industrial Average 50-day 28,802 200-day 27,213
We are focusing on industries and stocks with greater exposure to the US economy but wouldn’t force anything this morning.
Portfolio Approach
We are closing three ideas this morning where the underlying fundamentals have slowed in order to raise funds in the model portfolio.
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