Virus headlines worse than reality Virus headlines worse than reality https://stage-fii.federatedinvestors.com/static/images/fhi/fed-hermes-logo-amp.png https://stage-fii.federatedinvestors.com/daf\images\insights\article\medical-test-tube-small.jpg February 24 2020 February 14 2020

Virus headlines worse than reality

The past week's spike belies signs of improvement.
Published February 14 2020
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By its very nature, the state of the coronavirus outbreak is fluid, but several developments this week suggest the outcome will not be as dire as once feared. While the number of confirmed cases spiked at the end of the week, it’s primarily due to a less stringent diagnostic process based on a doctor’s exam. Previously, hospital staff only counted cases validated through CAT scans, nucleic acid test and other assessments. This sort of testing equipment is in short supply even in the best hospitals, so the process was slow and often inaccurate because it is a new strain. There were many cases of a patient having even multiple negative results before finally showing positive—long after they were sent home without adequate medical treatment.

But hospitals outside of China—and indeed even outside of Wuhan—are not similarly stressed and are on alert. Confirmed cases reported outside of Hubei Province have declined for nine straight days. This information comes from the state-run People’s Daily, the only official data available to the outside world. But the recent sacking of top government officials in the province suggest transparency has arrived. For anyone who knows Chinese politics, the Communist Party Secretary at all levels of government holds more power than any governor or mayor at the same level. The procedural change in confirming cases happening at the same time that new leadership has taken over is not a coincidence. The former officials likely were directly responsible for the under-reporting. While tragic, this new spike is a positive, not negative—the worst-case scenario probably already taken place.

At this point, it is not insensitive to consider the economic impact, and it starts with shuttered factories and disruption to global supply chains. But some of the companies we follow are signaling they could catch up on lost production by running three shifts a day versus two and taking other measures to boost output as the spread of the virus abates. It helps that many companies in China and neighboring countries use a great deal of automation in their factories. If the outbreak does prove transitory, as we think it will, the negative impact to the economy likely would not have lasting impact. What would really be scary is a rapid rise of cases outside of China. That has not happened yet, fortunately.

Tags Markets/Economy . International/Global .
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Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

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