By Gavin Gibbon
Maurice Gravier says they are 60 percent confident the economic disruption will be contained to China and affect Q1 results
Investors have been warned against cashing in, despite continued global fears over the deadly coronavirus, according to Maurice Gravier, chief investment officer, Emirates NBD Group.
Speaking at a media briefing on Sunday to launch the company’s global investment outlook for 2020, entitled ‘Back to Reality’, which was completed before the onset of the coronavirus, Gravier insisted there was no need for panic.
He said: “What we hope is that it’s a Q1 thing, a Q1 Chinese impact. We have 60 percent confidence in that scenario. But now there is no reason to sell because it’s as dangerous to sell. You sell everything and then you realise that there are no new cases, people recover or mortality stays low and then there is an inflection, markets could be up ten percent in three days.”
Since emerging from the central Chinese city of Wuhan late last year, the mysterious coronavirus has killed more than 300 people, infected 14,000 across China and spread to 24 countries.
The World Health Organisation late last week declared the situation a global health emergency, and nations have taken extraordinary measures to build virtual fortresses against the disease.
Global giants such as Google and Apple have closed their offices in mainland China, while factories have also granted employees an extended break over the Chinese Lunar New Year holiday.
Gravier said: “There is a demand shortage for sure. You cannot contain an entire province, shut factories and everything. There is a demand shock, it’s mostly Chinese and given the strength of the Chinese consumption we have no doubt that this will be a temporary impact and it will bounce back at a point.
“Then there is the supply side and there the problem is not so much the virus, but the measures that the Chinese government has taken to prevent it, like closing factories. Factories were closed for the New Year holidays, which was absolutely fine, then it was prolonged and they are now supposed to open on February 3.”
Gravier believes, should the factories reopen on Monday, then the effects will only be felt at a regional level in China. However, should they remain closed, then he admitted that would be of concern.
“If they reopen in February we will have a sharp impact, both regional and temporary. If they don’t what will happen? China is the largest exporter in the world. The factories of China are not just Chinese factories, they are factories for the entire world. Then we will see some contagion to other markets, through the supply chain and this is something we are worried about,” he said.
China's central bank said on Sunday it would pump 1.2 trillion yuan ($173 billion) into the economy as it ramps up support for a nationwide fight against the deadly virus that is expected to hit growth.
The People's Bank of China (PBOC) said in a statement it would launch a 1.2tr yuan reverse repurchase operation on Monday to maintain "reasonable and abundant liquidity" in the banking system, as well as a stable currency market, during the epidemic.
It added that the overall liquidity of the banking system would be 900bn yuan ($129bn) more than in the same period last year.
The move will kick in the day that China's financial markets reopen, following the extended Spring Festival break.
The potential hit in lost global growth could total $160bn, according to Warwick McKibbin, a professor of economics at Australian National University. The effect of this outbreak could be three to four times larger than the blow from SARS.