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A slump in financial markets this week has been spurred by concerns over coronavirus. The S&P 500 has had its worst week in years. | CHART COURTESY OF GOOGLE[/caption]
As the coronavirus spread outside of China in the past week, investors have begun to get more concerned about the long-term impact. The New York Stock Exchange opened Monday, Feb. 24, with a frenzy of selling as investors downgraded their outlooks for the quarter and year considering the risk of pandemic for coronavirus. The S&P 500 dropped 3.5%, its worst one-day loss in two years, and the markets have been hammered all week.
Delaware-based publicly traded companies were among those swept up in the market’s jitters, with Chemours losing 27% in share value from Feb. 24 to 27, followed by InterDigital and DuPont, which each lost about 14% in their share values. Corteva didn't fare much better, dropping about 12.5% in the period.
The stock losses weren’t confined to manufacturing and tech sectors, however, as lending services firms like Navient and Sallie Mae also suffered share value losses of 20% and 14% respectively over the same period.
Elsewhere across Delaware’s dozen publicly traded companies, losses weren’t as deep early in the week, but were growing – Artesian (4%), Chespeake Utilities (8%), Dover Motorsports (9.5%), Incyte (6%), The Bancorp (7%) and WSFS Bank (11.5%) – because they were more insulated against the virus’s effect on overseas markets.
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Luke Tilley | COURTESY OF WILMINGTON TRUST[/caption]
Luke Tilley, chief economist for Wilmington Trust, said that his investment firm changed its position Feb. 24, advising clients to sell stock in U.S. large-cap and emerging markets sectors due to the impact of coronavirus and its potential to linger.
“We believe that there is still a long way for this to go as far as impacts on the market,” he said. “To the extent that a company has sales or supply chain needs in emerging countries, that would be concerning. We do that know manufacturing is the hardest hit sector in terms of Chinese impacts.”
Unlike prior pandemics, such as SARS in 2002-03 and H1N1 in 2009, the global economy is much more interconnected now, meaning international companies will be more impacted by health concerns around the globe, Tilley explained.
“SARS occurred just one year after China joined the World Trade Organization. We make a lot of stuff with the help of China 18 years later,” he said.
Bintong Chen, professor of operations management at the University of Delaware’s Lerner College of Business and Economics, called the pandemic “a learning lesson” for companies that have global supply chains.
“Apple totally depends on China for its supply chain. I’m pretty sure that they’re going to diversify their operations in the future due to what they’ve seen here,” he said. “Companies will have to assess whether they want to be global, and if so to what degree?”
For now, Tilley said that Wilmington Trust analysts were looking at both health and financial information to shape their economic outlook.
“We’re actually having a guest epidemiologist on for a podcast to talk with our investors because we’re obviously not public health experts,” he said, noting so much about the coronavirus is still unknown. “We’ll also be looking at quarterly reports for any indication about how supply chains are moving or not moving.”
Overall, history shows that the pandemic will wind down and end at some point, but Tilley said analysts would be looking at whether the economic hit would be limited to delays or outright losses.
“Are their sales shifted from one quarter to the next or were the sales skipped entirely?” he said of the question to be watched for companies.
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Bintong Chen | PHOTO COURTESY OF UD[/caption]
Chen, who grew up in China and still has family there, said that the short-term economic impacts of the virus may be over-emphasized when considering its potential long-term implications.
He explained that as Chinese residents are quarantined in their homes, they are doing more online, including shopping, education and health care. The pandemic will help normalize the behaviors for even older Chinese citizens who weren’t so connected to the internet, an impact that other countries could face as well as the virus spreads.
“I believe this will accelerate the transition to online services,” he said, noting that telemedicine and online learning were not prevalent in Chinese society, but the nation has been forced to do so under the quarantine.
Unlike in the U.S. where online learning and degree attainment has grown online, Chen said that the online educational framework in China has not matured. Now, professors are turning to commercially available video-conferencing applications to continue their coursework with quarantined students. He suspects that following the end of the coronavirus that such services will grow in popularity.
Even if the U.S. is able to avoid a major coronavirus outbreak, Chen said he believes more interest and resources will be invested into expanding online services in the country and overseas as companies see the potential for financial return and the need to be prepared.
“As is often the case, out of disaster may come innovation,” he said.
By Jacob Owens
jowens@delawarebusinesstimes.com
