Chinese economy is set to suffer

21 February 2020

The Noise

  • Apple has warned investors that it will miss its revenue forecast for this spring due to the devastating impact of the coronavirus on the Chinese economy. The phone maker has suffered a hit to its supply chain due to the epidemic and is now seeing “a slower return to normal conditions than anticipated”. The announcement makes Apple one of the first companies to openly admit to the detrimental effects of the outbreak on business, as all eyes now remain on comparable tech companies. 

  • The Chinese economy is set to suffer its worst quarterly performance since the Tiananmen Square protests in 1989, due to the effects of the coronavirus outbreak. Chinese officials cut a key medium-term interest rate this week in an effort to pump more liquidity into the economy and hopefully raise hopes of a stimulus to curb the impacts of the virus. 

  • The price of gold climbed to a seven-year high on Thursday as the virus continues to incite a flight to safety from investors. Prices are up 9.8% since the start of the year as markets remain uncertain of the long-term effects of the epidemic on equities. The commodity has been supported by comparatively weaker government bond yields and a Federal Reserve that has kept interest rates low.

The Numbers

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The Nuance


This week has seen similar themes facing investors which have persisted since the start of the year: clear and present risks face the world economy. Despite this backdrop, our diligent investment strategy continues to work and though we are ever mindful of the risks our investments face, we see no reason to make any material changes at present. We continue to monitor the situation and we expect that given the persistence of economic inactivity within businesses and homes in China, we haven’t yet seen the full impact of the virus spill into the global economy and into markets. However, we’re invested in resilient businesses with strong balance sheets which are well positioned to withstand these stormy seas.

As we move into earnings season in the midst of this noise, it’s reassuring to see that the companies in which we are invested have been posting results in line with our expectations. Undoubtedly, there is plenty of cause for concern in the backdrop but we are happy with how our investments are performing and we are taking active steps to ensure we are not being complacent in these troubled times.
 

Quote of the week


“Trinity College must cut ties with fossil fuel companies and stop trying to hawk off nature for profit. Oh, and it should take the opportunity to replace the lawn with flowers.” Extinction Rebellion’s Facebook page.

Extinction Rebellion protestors have dug up the lawn of Trinity College, Cambridge in a protest against the college’s “ties with fossil fuel companies” in a spate of grass roots activism – if you’ll pardon the pun. The action was taken as part of a week-long series of demonstrations in the ancient university town. “They own Innocence Farm in Suffolk and want to sell it to Felixstowe Port to build a lorry park for 3,000 vehicles” read the Facebook page of Extinction Rebellion’s Cambridge branch in justification for the group’s actions. They also claimed on Twitter that the college has invested £9.1m in oil and gas companies, more than any other Oxbridge college. Apparently the best way to protest against environmental destruction… is to engage in some environmental destruction.

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