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Learning From China’s Experience Fighting Coronavirus


Andrew Xiao, PhD, CFA
Senior Portfolio Manager, China Equity
Laura Ostrander
Emerging Markets Macro Strategist
George Bicher
Asset Class CIO and Portfolio Manager

As Covid-19 disease reaches more countries and new reported cases continue to rise, public anxiety will increase and add more uncertainty for investors. Beyond efforts to contain the outbreak, we expect countries to intensify their fight against this highly contagious disease. We think significant insights can be gained by studying China’s experience in combating Covid-19.

The outbreak first started in China in December 2019. Following the government’s decisive actions, available data suggest that the coronavirus has now been largely contained. The economic and social costs of these measures are unfolding, but the actions have been effective.

Some observations from China’s experience with Covid-19 are:

  • Epidemic curve in China indicates successful containment  
  • Commitment to contain the virus was directed by the highest level of leadership, which mobilized all available resources
  • Draconian actions, such as factory closures and mandatory quarantines, were taken at high costs
  • Fatality rates outside the Hubei Province are materially lower than inside it
  • China has provided measured, targeted stimulus as well as rate cuts to cushion the impact on small-and-medium enterprises and households; more stimulus measures are expected
  • Economy is coming back to life, gradually, as evidenced in various high frequency measures of economic activity

Key ongoing challenges for China are:

  • Containing imported cases
  • Preventing a flareup of virus cases as normal daily life returns
  • Implementing sufficient fiscal and monetary stimulus to ensure economic growth recovers, while at the same time not creating excessive and/or inefficient credit growth

Profound changes in consumer and business behaviors taking place during the outbreak may have lasting consequences. Social distancing has become a key operative word in the time of Covid-19, driving accelerated adoption of e-commerce, telecommuting and online entertainment. Also, the virus has increased awareness of the need for preventative health care as well as health and life insurance. The short-term negative impact on the global economy and capital markets could be significant. To eventually win this war, we need an effective treatment for and vaccine against the Covid-19 and this may take some time.

Investment Implications

From an investment viewpoint, China looks to be in a better spot compared with most other countries. As the first country going into the war against Covid-19, China has managed through the initial surge phase of the outbreak and containment now looks achievable. The Chinese economy has taken a huge hit, but high-frequency economic activity data to date, such as coal consumption, suggests there is a gradual yet steady recovery in economic activity as the outbreak is contained.

In contrast, most other large economies are just beginning to recognize and take on the tough fight against Covid-19. The transient nature of the virus’ economic impact along with expectations of continued policy support may also be contributing to China’s outperformance in the MSCI Emerging Markets benchmark.

As active fundamental emerging market investors, we believe that excess returns above that of passive index can be achieved through a disciplined investment process that aims to identify long-term winners among all the listed companies.

There will be winners and losers among sectors and industries in the war against Covid-19. Among the losers we see travel & leisure, transportation and energy. Among winners are e-commerce, online entertainment and health care. Higher-quality companies with more resilient business models and stronger financial positions will likely emerge from this crisis in a better position to deliver returns for shareholders.
 

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