JP Morgan is looking past the impacts of the coronavirus and forecasting a rebound for later in the year, buoyed by strong consumer spending and Chinese fiscal stimulus.
The coronavirus – now known as COVID-19 – has killed over a thousand people and sent volatility spiking with fears that it could tip the global economy into a recession. But with new reported cases beginning to slow, global asset manager JP Morgan believes that a turnaround is now on the way.
“What we’re really making a bet on is that this is a transitory event,” said Leon Goldfeld, a Hong Kong-based portfolio manager in the Multi-Asset Solutions team.
“It has an immediate impact on GDP, but that will be offset later in the year.”
Consumer spending on travel and tourism has been hit particularly hard by COVID-19, with Singaporean authorities slashing visitor arrival estimates by a third and Macau – already suffering from yesteryear’s trade war uncertainty – closing its casinos.
But Mr Goldfeld expects that more people will travel – and spend – as anxiety about COVID-19 lifts. A similar rebound occurred after the SARS outbreak, when Hong Kong’s tourism sector bounced back after an almost 70 per cent drop in arrivals at the height of the pandemic.
“Events that haven’t occurred in the first quarter are going to occur in the second or third quarter, but they’re still going to occur,” Mr Goldfeld said.
“You’re delaying them but you’re not fully cancelling them… and because there is delayed spending and forced saving, people may go out and take a trip they otherwise wouldn’t.”
However, keeping businesses afloat long enough for that rebound to occur will be tough, as restaurants and travel agents struggle to get people in the door.
“The critical thing is to keep this a liquidity event rather than a solvency event, because if you bankrupt them, that will slow down the recovery that much more,” Mr Goldfeld said.
“And banks have been told to maintain liquidity to businesses that are genuinely being impacted, such that they can ride through this period.”
Mr Goldfeld also anticipates that, in addition to its 10 basis point rate cut, China will accelerate fiscal spending in the areas that have been the most affected by COVID-19 to restore consumer confidence.
The recovery will also be buoyed by China’s corporates, with companies like Alibaba providing flexible temporary employment to people who have lost their jobs due to the crisis.