Of all the places I would have expected to be on a Tuesday night in New York City, it was not a pharmacy in Flushing, Queens buying face masks. It was on the request of a friend as the pharmacy had a strict one box per customer policy in operation. The masks I purchased will be shipped to China. They need them. I am not of Chinese descent, but my neighborhood is mainly composed of people who are, and there is a palpable fear of the coronavirus here.
It's not just the face masks. The annual Lunar New Year celebration at Flushing Town Hall was canceled this week, and even PIX11 News, which rarely ventures into these environs, sent a camera crew to one of Flushing's famous dining halls, which was conspicuously uncrowded.
I guess I have a little more insight than the average Connecticut-commuting, loafer-wearing hedge fundie on the feelings among the Sino-American community. With the advent of Tencent's (TCEHY) WeChat and other social media platforms, Chinese news is everywhere in my neighborhood. The pictures contained in those news reports (I don't speak Mandarin) are pretty damn scary these days.
With nearly 10,000 infected and 213 fatalities as of the latest update from Chinese public health authorities last night (early morning in Beijing), it is clear to me that this is a pandemic. Human-to-human transmission is indeed occurring and recent research indicates that the virus has been active since the beginning of December. Since tomorrow marks the beginning of February, an activation period of 60 days indicates to me that the figures will grow much, much higher especially as some estimates of the average spread among contacted people (called r_0 or 'R-naught") are indicating a substantial multiplier effect.
I always try to seek out data in the midst of market fog, and I found a very good series this morning. While the U.S.'s dual (and some would say dueling) measures of sentiment and confidence published by the Conference Board and University of Michigan are very widely quoted, I had never seen a broad measure of consumer sentiment for China until this morning. There is one.
China's National Bureau of Statistics cobbles together the information from a ridiculously small sample (700 people in a nation of more than 1.4 billion) but there is history back to 1990 and thus I believe the series is useful, if not precise.
To summarize the performance of China's consumer sentiment index in one word, I would say "good," Possibly even "really good." After sitting in a range of 100-110 for most of the 2012-2016 period, the Chinese sentiment index broke out in mid-2016 and was measured in November at 124.60, up slightly from October's level and down only slightly from the record levels posted in early-2019.
So much for the trade war, huh?
I think those statistics are very enlightening and point to a Chinese consumer that has been energized by the continuing strength in the economy relative to the rest of the world. No, I don't know any economist who actually believes the Chinese government's official GDP growth rate estimate of 6%, but whatever the actual figure, it's certainly better than low 2% range we have been hitting in this country and the pathetic 1% or so being posted in Europe.
That was a eureka moment for me, but also a very sobering one. Apple (AAPL) clearly had a great December quarter in China (Tim Cook alluded to this several times on the company's earnings call,) but remember, even though the coronavirus was clearly incubating then, there were no public reports on it until the last two weeks. The Chinese consumer just didn't know. That's the single largest variable facing the market today: the health (literally and figuratively) of the Chinese consumer. There is probably enough redundancy in the global supply chain to handle this disruption, but there really is an extraordinary elasticity in demand, especially for durable goods.
Elon Musk needs a robust Chinese consumer to hit Tesla's (TSLA) goal of 500,000 deliveries in 2020, and Nike (NKE) , Starbucks (SBUX) and Disney (DIS) are just a few of the other consumer-facing companies that would see material cuts to earnings estimates if this pandemic grows. Airline stocks are radioactive here and with Macau shuttered during the biggest travel week of the year, I certainly wouldn't touch a gaming stock for the next three months.
This is a human tragedy. I hope some humans in China receive the face masks I purchased, and I hope that investors remember that actual human beings are the ones purchasing cars, cell phones, and coffee everywhere around the world.