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JP Morgan: 5 Stocks That Could Rise as Virus Fears Spread

JP Morgan: 5 Stocks That Could Rise as Virus Fears Spread
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By    |   Friday, 24 January 2020 01:06 PM

Economists are scrambling to determine just what the broader economic impacts will be as China's deadly coronavirus continues to spread.

U.S. health officials confirmed that a second case of Wuhan coronavirus in the United States had been detected in Chicago, adding to nerves after the outbreak in China killed 26 people and infected more than 800 in the past week, raising concerns about its fallout on the global economy, Reuters reported.

Meanwhile, mounting fears about the outbreak have roiled financial markets.

While the outbreak of the coronavirus is still in the early stages, there is reason to believe that the economic impact might be somewhat muted when compared with SARS, Barron's recently reported. "This is due both to the swifter response to the illness from Chinese officials as well as advances in technology that can facilitate commerce even when travel is constrained," Barron's said.

To be sure, economists still predict “significant downside risk” over the next two quarters, but there could also be differences in transmission, according to a recent note by J.P. Morgan’s Haibin Zhu.

“The Chinese government has taken serious action much faster this time,” Zhu wrote, according to Barron's.

Online sales in China have risen 30% since 2014 and now account for 20% of total retail sales, up from zero to low single digits in 2003, by Zhu’s estimate.

While airlines, airports, and other public places are sure to see a drop in traffic as travel bans take hold and people avoid going out, online business may rise.

E-commerce platforms such as Alibaba Group Holding (ticker: BABA), Meituan Dianping, and Vipshop Holdings (VIPS) could benefit, as could delivery companies such as ZTO Express (ZTO) and BEST (BEST), Zhu writes.

Friday on Wall Street, airlines and travel stocks fell again, with United Airlines Holdings Inc and American Airlines Group Inc shedding about 4%.

"It has taken the wind out of the market, because for now other than (Intel and American Express) we have stocks coming under some selling pressure," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

"It's a knee-jerk reaction," Cardillo said, adding that strength in earnings was sufficient to prop up markets.

Of the 63 people under investigation from 22 states, 11 have so far tested negative, CDC said on a conference call with reporters.

News of the woman in Chicago infected with the virus that originated in Wuhan, China, followed the announcement earlier this week of a man from Washington state who was diagnosed with the virus after returning from Wuhan.

The newly discovered virus has killed 26 people and infected more than 800. Most of the cases and all of the deaths so far have been in China, where officials have imposed severe restrictions on travel and public gatherings.

Elsewhere, S&P Global Ratings warned that Chinese consumption, a key growth driver in an economy transitioning from investment, is set to take a blow from the coronavirus outbreak that hit just as millions of people set out on vacation, Bloomberg reported.

If spending on things including discretionary transport and entertainment dropped by 10%, overall GDP growth would fall by about 1.2 percentage points, according to “back of the envelope” estimates from Shaun Roache, Asia-Pacific chief economist.

“Industries exposed to China’s household spending, especially activities that take place outside the home, will likely feel the biggest economic impact of the outbreak,” Roache said. “Risk aversion and tighter financial conditions could amplify the impact, including on investment.”

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Economists still predict “significant downside risk” over the next two quarters, but there could also be differences in transmission, according to a Wednesday note by J.P. Morgan ’s Haibin Zhu.
stocks, virus, fears, china
Friday, 24 January 2020 01:06 PM
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