Extended report: March 2020 By Greg Canavan, Editorial Director CORONAVIRUS & MARKET DROP: HERE’S WHY YOU SHOULDN’T PANIC Stocks have taken a hit...but Greg Canavan says they’re unlikely to fall to the crazy levels some are suggesting... Ignoring the panic...sitting tight...and waiting for the dust to settle could give you the chance to pick up world-class stocks at a discount — just like most rational investors will... Read on for more on Greg’s Virus Response Strategy Dear Reader, I bought a six-pack the other night: Asahi Dry, ‘Japan’s No. 1 beer’. I took a sip and looked at the label on the bottle: Brewed and made in China! Brewing an iconic Japanese beer in China and exporting it to Australia and New Zealand is obviously a way to keep costs down and profits up. But it’s hardly a way to maintain brand value. Needless to say, I won’t be buying China brewed Asahi Dry anymore. I mention it because it’s just one small example of how dominant China is in the global supply chain. Over the past few decades, Chinese manufacturing has facilitated the consumption needs of the West. ‘Made in China’ means lower prices. That’s thanks to the low cost of labour and non-existent environmental regulations. In short, the debt and consumption dependent economies of the West have put all their eggs in the China supply chain basket. Which hasn’t been a problem. Until now… The global supply chain is under huge pressure from the unabated spread of the coronavirus. Take these few quotes from a recent Wall Street Journal article: ‘Manufacturers world-wide are tethered to China by the tentacles of a supply chain that relies on the country’s factories for many intermediate and finished goods. ‘With fears of contagion keeping Chinese workers home, production is getting pinched. In the U.S., General Motors Co. unions have warned that a lack of China-made parts could slow assembly lines at sport-utility vehicle plants in Michigan and Texas; the company said it is working to mitigate the risk. Elsewhere, the story is the same... ‘Apple Inc. said it won’t meet revenue projections for the first quarter as the epidemic shuts its China plants. In Europe, container-ship operators are preparing profit warnings as dozens of trips out of China are cancelled.’ Up until a few days ago, the stock market wasn’t concerned about any of this. And the market is right...most of the time. To think you’re smarter than the market is the height of folly. Humility and ‘knowing that you don’t know’ should be the foundational mindset of all good investors. But the market does get it wrong sometimes. At major tops and bottoms, by definition, the market is wrong. So was the market wrong to ignore the risks from the coronavirus? Will a disruption to the global supply chain flow through to a sharp slowing of global growth? The first question to ask is: Why (up until now) has the market ignored the risks? There are two parts to the answer. CLICK HERE TO READ ON |