Major reference: Story in Finance Net
A NOTED MARKET watcher says he doesn’t expect much extended downside to Chinese equities despite the casualty count from avian flu steadily creeping higher of late.
As of the end of the four-day market hiatus commemorating Tomb Sweeping Holiday, there were 21 confirmed human cases of the H729 strain of bird flu in China, with six fatalities to date.
The recent reappearance of the dreaded virus has put a charge in some sectors like pharmaceuticals and personal hygiene products.
Stiff Upper Lip: Airline share prices are down on bird flu fears. NextInsight file photoAt the same time, upstream poultry processors, restaurants with fowl on their menus as well as airline and travel-related shares have all seen their fair share of price volatility this past month.
Despite the relatively slow spread of the disease so far, and China’s largest city Shanghai already having destroyed over 111,000 birds to nip the outbreak in the bud, some analysts believe the situation could damage China's overall economy and by extension, its stock markets.
Ting Lu, Head of Greater China Economics at BofA Merrill Lynch Global Research, is less pessimistic.
"Past experiences tell us that the negative impact from such epidemics won't last too long and ensuing pent-up demand could be quite strong, so there is no need for panic," the Hong Kong-based economist said.
He added that the total effect of the current outbreak will likely be “limited,” and the sustained selloff of airline stocks in particular a decade ago during SARS was mainly a “market overreaction.”
Recent sharp falls in some stocks – like Shenzhen-listed Peking duck restaurant franchise Quanjude (SZA: 002186) and an assortment of Chinese domestic air carriers – have just as soon witnessed bargain hunters putting value back into their equities following steep drops.
And profit seekers have also been active, selling off most of their recent gains in pharmaceuticals on Tuesday which had any connection to vaccinating against -- or treating -- bird flu.
Therefore, it is likely more anxiety and the fear of the unknown (i.e. how fast the contagion may or may not spread) that is deflating related-issue share prices rather than any concrete data suggesting the disease is here to stay for any extended period.
China shares recent performance. Source: Yahoo Finance
The sharp share dumps and quick subsequent recoveries of sector plays believed to be more vulnerable to a larger infection pool are allowing many market watchers to be less pessimistic on the long-term effects of bird flu on China’s capital markets than might normally be expected.
Furthermore, there is less general panic and anxiety within investment circles because the scale and speed of the recent return of the disease is far smaller and slower – and official figures much more forthcoming and transparent – than things were a decade ago with SARS and more recently with other avian flu outbreaks.
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