The outbreak of the novel Coronavirus in China has limited global travel, slowed the Chinese economy, and caused mild panic throughout Asian stock markets.
The cost to life has been especially high, with 2,247 deaths, and over 76,000 confirmed infections. Although less deadly than the common flu, the new virus is particularly concerning due to its apparent ease of spread. It has now been detected in 30 countries and territories, although around 99% of cases are limited to the Chinese mainland.
The impact on U.S. stocks has been minimal so far, with underlying economic strength supporting an ongoing rally in the market.
However, investors should be aware that earnings may dip in the following quarters, especially now that major companies are releasing data on how their businesses have been interrupted. Maersk, the world’s largest shipping company, is the latest to do so.
Maersk Cancels Shipping and Warns of a Weak Start to the Year
Maersk (OMX: MAERSK.B) is a global shipping, transportation, energy, and offshore drilling company. Its main business is in ocean logistics and services. Its stock is listed on the Copenhagen Stock Exchange.
The company announced this week that it had canceled more than 50 shipping trips both to and from China and other Asian ports since the outbreak of Coronavirus. Demand is slipping due to factory slowdown in China. Maersk expects that demand will continue to decrease in the short-term.
On an earnings call this week, CEO Soren Skou told investors that “we estimate factories in China are operating at 50% to 60% of capacity.” Up to 30% of Maersk’s shipping business is tied to China.
80% of the world’s traded goods are carried by container ships, and 7 of the 10 largest ports are located in China. The Coronavirus could have a lasting effect on shipping revenues, which could erode earnings beyond this quarter.
Maersk hopes that Chinese factories will reach 90% capacity by March, depending on whether the government is able to contain the spread of the virus. Many factories are closed today as a precautionary measure.
Should American Investors Be Worried?
Maersk advised that the slowdown in its business could remove 5% of its projected revenue in 2020. As one of the companies most exposed to Coronavirus risk, this is a good benchmark to use when looking at American stocks.
Companies like Apple (NASDAQ: AAPL) and Nike (NYSE: NKE), which do tremendous amounts of retail business in China, could see their revenue projections fall short, at least in the first two quarters of 2020. Apple has warned that its first-quarter revenue will be lower than previous guidance, but it is yet to release any specific figures.
Coronavirus has not yet presented itself as a real threat to the American public. It is likely that its stock market damage will also be limited, although some China-related earnings decline is something that every investor should prepare for.
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