March 2020
Executive Summary
There are currently over 119,000 COVID-19 cases globally. While new cases of COVID-19 are on the upswing worldwide, they are on the decline in China. The draconian quarantine measures imposed by the Chinese government appear to have worked. As of February 25th, President Xi Jinping has ordered businesses to reopen. In addition, the government has introduced a comprehensive set of financial measures to stimulate the economy. McKinsey forecasts that first quarter GDP is expected to take a serious hit and 2020 GDP growth will be in the range of 3.8 - 4.7%. Stock indices were heavily impacted by COVID-19 in February and plummeted in value. The ACATIS QILIN Marco Polo fund lost 0.4% in February while the index has lost 4.8%. COVID-19 on the decline in China
While cases are surging in other countries, COVID-19 is retreating in China. New cases in China have been falling to ~40 per day, due to strict containment measures. These include lockdown, mandatory and voluntary quarantine, as well as travel restrictions affecting over 760 million people. Schools and businesses have been shut down since end-January. Most of the population have stayed home, working remotely and ordering meals and groceries online. Those who venture out have their temperatures taken at regular check points and must sign in on mobile health apps that assign red, yellow or green health ratings. These ratings determine whether users are allowed to travel or must return home to quarantine.
China is back-to-business
As of February 25th, Xi Jinping has ordered businesses and factories to reopen. 9 provinces have lifted their “emergency” status and removed travel restrictions. Nearly 100% of critical industries like communication, power grid, transportation, petroleum, petrochemicals have resumed operations. 80% of state-owned factories have resumed production. Local governments have even chartered trains, planes and buses to ferry workers back to factories to get production going and meet targets. In particular, the government has implemented fiscal and monetary policies to stimulate the economy. These measures include increased liquidity (injected RMB 2.8 trillion), extended credit to support businesses (loaned RMB 300 billion and dropped rates from 10-25bps), deferred interest payments and exempted VAT for eligible firms. Economic hit in Q1
Nonetheless, the quarantine will impact China’s GDP significantly, particularly in the first quarter. The drop in consumption and production has led to disruptions of global supply chains and falling oil demand. Consequently, analysts forecast a Q1 GDP growth below 3% (lowest in 40 years) and 2020 growth of 3.8-4.7% (drop 1.3%-2.2%). ACATIS QILIN has outperformed the index in the downturn
Overall, February was heavily impacted by the coronavirus outbreak. After an extended Chinese New Year’s holiday, the Chinese stock market plummeted the first day when trading was resumed. The market quickly rebounded within two weeks in part due to the declining number of new COVID-19 cases in China and government’s policies to stimulate the economy. However, the market experienced a further downturn on news that COVID-19 had spread to other parts of the world, impacting global growth. In February, ACATIS QILIN Marco Polo fund lost 0.4% while the index lost 4.8%. Since inception, the ACATIS QILIN Marco Polo fund has an absolute performance of 14.5%, outperforming the index by 9.3%.