Investment Reflection on the 2020 Epidemic

Author: Financial Investment Committee of the US China Investment Promotion Association

At the beginning of the new year, an epidemic of novel coronavirus spread all over the country, and 2020 was doomed from the beginning. At the same time, the current epidemic has brought short-term disturbances to the financial market, causing certain negative impacts on financial institutions. How to cope with the pressure of the epidemic on the economy? This article will take the impact of the SARS epidemic in 2003 as a reference and explore some investment predictions and economic impact analysis on mainstream industries from a macro perspective. At this special moment, through in-depth analysis, this article hopes to provide some reference and direction for investors and practitioners.

The impact of this epidemic on the industry is mainly reflected in three aspects:

1、 This epidemic is similar to SARS and has had a serious impact on the service industry. Isolation restrictions have led to a decline in traffic flow. According to statistics, during the 2020 Spring Festival, a total of 1.352 billion passengers were sent by railways, roads, waterways, and civil aviation in China, a decrease of 40% compared to the same period last year; In addition, this epidemic coincides with the peak consumption season of the Spring Festival, and the impact may be even greater. It will cause short-term damage to consumer services, but with the gradual recovery of construction and social order, the tourism market and transportation are likely to gradually recover after the epidemic is under control; The demand for leisure tourism continues to upgrade, the supply of tourism products is becoming increasingly abundant, and infrastructure such as transportation is constantly improving. The long-term growth logic of the tourism and transportation sectors remains unchanged. If there is a oversold in subsequent sectors, it is expected to bring long-term allocation opportunities. During the SARS period, the film industry was not outstanding, but this Spring Festival season is quite promising. Seven spring season films have announced their withdrawal, putting pressure on the cinema sector in the short term. In the long run, cinema films will choose to be broadcasted online, benefiting both the producers and online partners, further putting pressure on the cinema sector. If the online screening time of cinema film producers is not properly controlled, the cinema film sector will also be affected in the long term. In addition, even if the epidemic subsides, the repair of demand in these industries will depend on time windows such as long holidays.

2、 The epidemic has restricted going out, hindered the demand for clothing consumption, and deepened the impact of the peak sales season. Although the current retail channels are more diverse than in 2003, online shopping has made consumption more convenient, but due to the reduction in travel, people's demand for dressing up has decreased in the short term. The outbreak of this epidemic during the Spring Festival period coincides with the peak sales season of jewelry, clothing, fast fashion and other products. Therefore, the impact of this epidemic on them may exceed that of the SARS period. However, the release of medium - and long-term consumption potential and the trend of consumption upgrading remain unchanged. The increase in people's travel will bring about a faster recovery of demand in these industries.

3、 Industrial production off-season, short-term disturbance from the epidemic. During the SARS outbreak in 2003, the sales growth rate of some construction machinery declined, and the revenue of related listed companies has now declined. But the outbreak of this epidemic occurred during the off-season of production, and currently it only delays the pace of resuming work, bringing greater short-term pressure to production. In addition, optoelectronic information, automobiles and components, biopharmaceuticals and medical devices are the three pillar industries in Wuhan. The time for resuming production in Wuhan and the entire Hubei Province is currently unknown. In the long run, the impact of the epidemic on the manufacturing industry chain will gradually disappear as the epidemic weakens and industrial production resumes. However, small and micro enterprises at the end of various industrial chains may face the problem of tight funding chains or even bankruptcy if they experience continuous production stoppages and shutdowns.

Meanwhile, experience during the SARS period has shown that some industries can develop immune to the epidemic.The medical industry is developing rapidly, with a clear trend of high in the front and low in the back.The epidemic has provided rapid development opportunities for the medical industry, but as the epidemic has shifted from severe to mild, the performance of the medical industry has also shown a trend of high in the front and low in the back.Agricultural and sideline food industryAs a necessity for daily life, demand remains stable during the impact of the epidemic, but we need to be vigilant about the risk of price increases. Car sales are under short-term pressure, but may face repair opportunities in the long run. In the short term, the impact of the new pneumonia epidemic may inevitably put pressure on car sales, but in the long run, it will actually drive industry development。In the short term, medicine can be considered, and in the medium to long term, the automotive sector will be a good choice.

In addition, the COVID-19 pandemic has also provided development opportunities for emerging industries. Due to the restrictions on travel caused by the epidemic,Online channel purchaseBuying has become a new hot topic. On the other hand, the epidemic has also catalyzed the partial transfer toOnline service consumption industry。

For example, the already popular fields of mobile games, short videos, online office, and more, compared to the previously tested fields of online education. In addition, some service industries affected by the epidemic are also trying to shift to online channels. However, the assessment of the growth attributes of emerging industries catalyzed by the epidemic still needs to return to the industry itself. Investors need to consider cautious observation in the short term.

From the experience of the SARS period, market fluctuations during the epidemic often gradually subside as the epidemic fades. This also means that we need to dialectically view the impact of this new pneumonia epidemic on the industry. Firstly, for industries that have been significantly impacted, attention should be paid to demand recovery after the end of the epidemic. Secondly, for the "immunization" industry of the epidemic, it is necessary to grasp the rhythm based on a clear distinction between short-term and long-term impacts. Finally, for emerging industries catalyzed by the epidemic, the assessment of their growth attributes still needs to return to the industry itself. I hope that investors and friends do not need to panic, closely monitor changes in the epidemic, and invest rationally.

2020 is a challenging year for investors, and cautious venture capital should pay high attention to cash flow reserves. The country will introduce a series of policies to support small and medium-sized enterprises and physical enterprises. For emerging fields such as medicine, big health, tourism, entertainment, and new energy vehicles, it has been a year of explosive growth. I believe that the people of the whole country will unite and, with the joint efforts of society, the epidemic will soon pass. Everything will return to a continuous and steady track.

The US China Investment Promotion Association (ACIP) is mainly initiated by elites in finance, technology, education, culture, trade, and other fields from the United States and Europe. In the global field, ACIP is committed to becoming the most influential platform for promoting financial capital, industrial innovation, education, science, culture, health, and cultural tourism exchanges and interactions between Europe, the United States, and China. The US China Investment Promotion Association has branches in more than 40 countries around the world, and currently has over 5000 top international experts, scholars, and professors, as well as over 4000 outstanding entrepreneurs in various fields around the world. Gathering global advantageous capital, top talents, and high-quality projects, forming interactive integration, deep links, innovation and upgrading, capital matching, and resource optimization between global members and industrial sectors. The US China Investment Promotion Association is committed to building an important civil bridge to help the world understand China and connect China with the world.