Global Equity Strategy The coronavirus our take Investment Strategy Strategy So far it looks like the mortality rate from the Wuhan coronavirus is much lower than that of SARS or MERS and the Chinese government s response has been much quicker than during the SARS outbreak Nevertheless the strong reaction by the Chinese government including travel bans and an extension of the holiday period and the fact that the virus can be transmitted before symptoms appear could result in a bigger impact on the Chinese economy than SARS GDP growth China s share of global GDP is more than four times as large as it was in 2003 SARS was estimated by the CDC to have taken 40 50bn off global GDP Assuming half of this impact fell on China which accounted for 66 of SARS infections then it took about 1 2 1 5ppts off Chinese GDP Chinese GDP growth slowed by 1 4ppts in Q2 2003 A similar slowdown today would take c 0 2ppts off global GDP growth on our estimates however we would expect China to mitigate much of this impact by further easing both monetary and fiscal policy it has already been in a clear cut easing mode since November 2019 Moreover the big headwinds for China in 2019 weakness in manufacturing investment due to the trade war and a sharp slowdown in the shadow banking system in 2H18 are now abating A larger online economy also mitigates the impact We believe the global economy will continue to recover even if there is a near term pause Markets further consolidation but buy into weakness Our tactical indicators last week were close to three year highs and the St Louis Fed financial stress indicators reached all time lows Therefore a period of consolidation is to be expected During the SARS outbreak Hong Kong equities troughed around a month after the peak in the daily infection rate During other public health scares Ebola swine flu and bird flu the S we think it will be close to 1 5 Risk Disruption to supply chains might occur similar to those seen in the aftermath of the 2011 Fukushima earthquake and the extended closing of China exchanges might force investors to take out more aggressive hedges in instruments available 28 January 2020 Equity Research Global DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES ANALYST CERTIFICATIONS LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON US ANALYSTS US Disclosure Credit Suisse does and seeks to do business with companies covered in its research reports As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report Investors should consider this report as only a single factor in making their investment decision Research Analysts Andrew Garthwaite 44 20 7883 6477 andrew garthwaite credit Robert Griffiths 44 20 7883 8885 robert griffiths credit Nicolas Wylenzek 44 20 7883 6480 nicolas wylenzek credit Mengyuan Yuan 44 20 7888 0368 mengyuan yuan credit Asim Ali 44 20 7883 2480 asim ali credit Timothy O Sullivan 44 20 7888 9803 timothy osullivan credit 28 January 2020 Global Equity Strategy 2 The coronavirus our take A less deadly virus than SARS but a much more aggressive response might result in a greater hit to GDP At the moment there are important factors that suggest the economic impact may be less severe than that of the SARS crisis The reaction by the Chinese authorities appears to be much faster this time around than during the SARS crisis While the first SARS cases were recorded in late 2002 rigorous quarantine measures only started to be adopted in both China and HK post the Politburo meeting on 17 April 2003 The SARS and MERS viruses seem to have a much higher mortality rates c 11 and 34 respectively compared to 3 for the current outbreak at the time of writing China has significantly improved its network of disease control centers and heat cameras have been installed at all airports Since SARS both the Chinese and global economy have shifted much more online e g retail sales banking gaming and education meaning consumption should be less impacted especially of services Much of the industrial sector is on holiday anyway currently owing to Chinese New Year However we also note The disease seems to be spreading much faster than SARS especially as it has occurred over Chinese New Year That said we acknowledge that it is hard to compare the early spread of the new virus to that of SARS as there was very little information available about the spread of SARS until March 2013 although the outbreak started in late 2012 see China Market Strategy Wuhan pneumonia outbreak lessons learnt during SARS in 2003 The shutdown is more aggressive The state council extended the New Year holiday by three days until 2 February and businesses in many regions e g in Shanghai were asked to close until 10 February Moreover the government restricted travel from impacted areas covering more than 50 million people with Hubei province accounting for around 4 of GDP The new virus seems to be infectious before sy