It seems we live in extraordinary times. As if Brexit, US elections, impeachment and endless experimental monetary policies weren’t sufficient, we now have the Coronavirus to add to the mix. Numerous companies have already stated this is now having a material effect on trading within China and we have no doubt there will be more to come.
Asia is obviously an attractive market and China especially so because, at the risk of stating the obvious, this is where all the population/economic growth is. However, the problem of growth being concentrated is that such events cause havoc and it is not just confined to China. Travel and business links to the rest of Asia are now restricted, so it is inevitable that at least in the short term, GDP (gross domestic product) growth will take a knock.
On the assumption that Coronavirus does not become a global pandemic, the denting of emerging market GDP progression will be temporary. That said, we would not be in the least bit surprised if the response of some central banks is to open the taps of monetary policy further (if that is possible) just to ensure the GDP slowdown does not lead to something nastier. All of which puts off the day of reckoning for a little while longer but makes the tinder ever drier. Our investment policy remains defensive.