When the virus broke out and the market tanked, the impact on company performance wasn't counterintuitive; Chinese citizens would stay home and not buy thing. But the issue runs a bit further than that.
First off, if Chinese citizens are unfortunately sick, they won’t leave their homes to shop. Chinese companies and global companies who sell goods and services in China will see lower revenues for 2020 than initially expected. And Chinese factory workers won’t go to work so they can avoid catching the virus. This means Chinese manufacturers aren’t making as many things as expected, so sales volumes, again will be hit.
And of course, if the virus spreads, the magnitude of all theses events will be greater and more revenue will be lost.
As for the impact on the global economy and stock market, there are two main ways to think about this. The first is the secondary impact on economies linked to China and the second is the history of how markets react to outbreaks.
U.S. and EU companies that import goods from China are hurt. If those companies can’t import with the same volume as expected because Chinese plants are shut down, they won’t meet demand. Sales volumes fall.
And like we said earlier, companies with simple revenue exposure to China get hurt.
This is all a clear negative for hiring. Layoffs could ensue, which would hurt consumer spending around the globe.
And historically, we have the SARS virus to compare to.
To learn about the comparison to SARS, watch the quick video above.
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