This Is What The Coronavirus Means For The Chinese Supply Chain

Joe Weisenthal (0:05)

Hello, Odd Lots listeners. Of course, normally we release new episodes on Monday, but today we're bringing you a special mid-week episode. That's because it's very timely one.

Obviously a lot of interest in the coronavirus and the effect that it's having on supply chains around the world. So we didn't wanna wait, we didn't wanna slot it in future in the schedule. We wanted to get it out now and hopefully you enjoy.

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:53)

And I'm Tracy Alloway.

Joe Weisenthal (0:55)

Tracy, you know what's really struck me in the markets over the last several weeks?

Tracy Alloway (1:00)

Go on.

Joe Weisenthal (1:02)

Well, obviously, the crisis over the coronavirus continues to be this massive story for the global economy, for China, Asia, all kinds of different companies. And yet, investors, in a weird way, outside of some specific names or specific currencies, still seem, surprisingly, or maybe not surprisingly, but generally not that worried right now.

Tracy Alloway (1:28)

Yeah, I find this pretty amazing. So at the time that we're recording, I think the S&P 500 is still pretty close to its all-time high. And what amazes me about that is we spent two years collectively worrying about how trade tensions between the US and China were going to affect global supply chains and economic growth and consumption. And we sort of followed every tiny in and out when it came to the trade negotiations.

And now when you have something, the coronavirus and the containment efforts underway in China, you have something that is guaranteed to impact production and consumption in the world's second biggest economy, as well as disrupt a bunch of supply chains. And no one seems to care.

Joe Weisenthal (2:17)

Yeah, it's really odd. It's really surprising. It's counterintuitive. It's not what I would have guessed.

Even this week, the week that we're recording it, we got a warning from one of the sort of emblems of US China trade globalization, Apple, which is heavily exposed to China on the supply chain front and heavily exposed to China on the revenue front, saying, look, this quarter is going to be worse than we previously expected. Factories aren't opening up for our suppliers as fast as we had anticipated a couple of weeks ago. We're not totally sure when things will be back to normal, not to mention the fact that people are out less shopping.

And the stock fell about 2% in the immediate wake of that, maybe because people figured this was the case already. And then the next day, the stock immediately basically erased all of those losses. So even a company coming out and saying, no, this is a serious issue for us, even it's not having that much effect on them right now, I guess people are so confident that the effects will just be transitory and everyone will be back to work eventually.

Tracy Alloway (3:30)

Yeah, and our colleagues over at Bloomberg Intelligence actually counted up the number of companies that are talking about the coronavirus at the moment. And I think they counted something like $9 trillion worth or companies accounting for $9 trillion worth of market cap have mentioned the coronavirus, but so far we only really have a handful of them who are issuing the kind of warnings that we saw from Apple. Most of them are just talking about how it's too early to say that they'll get a direct hit. But again, frankly, watching all of this go down in China and in Asia, I find it really difficult to see how global supply chains would not be impacted at this point.

Joe Weisenthal (4:16)

Right. So obviously, look, we don't know what the markets are going to do, and nobody does, and we'll just see what happens. But I do think, and I did think in light of that Apple warning, we really need to dive deeper into the question of supply change because so much of the world, so many companies that manufacture anything are exposed to China or East Asia in some way, and getting some sort of handle on what the risks are is key and what the risks, of course, to the China economy are going to be. That's also key.

So that's what we're going to discuss today.

Tracy Alloway (4:52)

Great. I think that's a good, good, good idea given the circumstances.

Joe Weisenthal (4:57)

All right. We have a really great guest. We've had him on the podcast, I think a couple of times before, at least once, but I'm pretty sure twice, is Dan Wang. He's an analyst at Gavekal Dragonomics. He's talking to us from Beijing. He's a tech analyst, really knows a lot about Chinese manufacturing, Chinese supply chains, the interaction with global tech. And he'll walk us through the risks posed by this virus, what we're seeing right now, as well as other risks that maybe people aren't even thinking about right now beyond the virus. So, Dan, thank you very much for joining us.