China is South Africa's largest supplier of imports, and its biggest buyer of exports - and the impact of the coronavirus outbreak on the Chinese economy will certainly be felt in the South African economy, according to a PwC report.
The report on the impact of the virus on SA businesses, released earlier in the month, highlighted that Chinese steel and copper manufacturing industries would mean weaker demand for South Africa's largest exports to the country.
"A Chinese economy with a weaker growth pace and slower metals production will have less demand for these minerals from South Africa," the report read.
SA's tourism industry will also come under pressure. With about 95 000 Chinese tourists coming to South African every year, it is one of the areas projected to be most affected, although the sector has not reported any dramatic declines yet.
"Based on recent tourist expenditure trends and some simplifying assumptions, a possible decline of more than 15% in arrivals this year translates into a potential loss of at least R200 million in Chinese tourist spending."
According to PwC Chief Economist, Lullu Krugel, the spread of the virus to European countries presents another dimension, as the EU is the country's largest trading bloc.
"I am worried that we have not potentially grasped that economic impact of the spread of the virus to Europe. We have been so focusing on China and have overlooked the impact on the European market," said Krugel.
The report further states that that mobile phones are South Africa’s largest import category by value from China, supplying 85% of South Africa’s mobile phone imports. A disruption would have knock-on effects on the wider telecommunications sector.
Comparing it to Sars
Speaking to journalists at a post-budget briefing in Cape Town on Friday, FNB Wealth and Investments head of investments Renzi Thirumalai shared how reports on the virus might impact markets.
He first compared it to another respiratory illness, Sars, which broke out in China back in 2003. About 8 000 people contracted the virus and it had a mortality rate of about 10%. The impact on the market at the time lasted for six months, Thirumalai noted. For the first 30 to 90 trading days there was market "pandemonium" due to negative headlines, but the impact had "worked itself out" six months later, he said.
"The difference now is that China is a much more significant contributor to global GDP and the level of global interconnectedness has increased substantially," said Thirumalai.
The coronavirus itself is more infectious than Sars, with infections now just over 82 000, but these infections are less fatal than Sars, he noted. However, he believes the market had "underappreciated" the risk of coronavirus.
When coronavirus first broke out last year, the market reacted, but not significantly. As it has spread across the world, there appears to be a far more severe impact on markets. This over-cautiousness can be attributed to uncertainty, he highlighted.
Business Insider reported earlier this week that the JSE alone had one of its worst trading days in 20 years, ending the day almost 4.5% weaker, over concerns relating to the virus. Investors instead turned to safe-haven investment, gold, which saw gold mining company Harmony Gold's stock rally 14%.
Given the current data on the virus, it is expected that the impact on the markets could take six months to work themselves out the system, said Thirumalai.
Currently, analysts are trying to determine if there might be a recessionary effect within the first half of the year. "The correction for that will be very quick once its worked itself out of the system," he said.
Thirumalai commended the strong response from China to contain the outbreak by preventing mobility, this helped slow the spread of the outbreak. He said this shows how the rest of the world might be able to do that.
But with the virus taking off globally, there is still not enough information to say how severe the impact will be on markets.
Earlier this week, Shoprite CEO Pieter Engelbrecht warned that the coronavirus could wipe off R100 million off the retailer's turnover. Shoprite's turnaover is normally around R170 billion. The group is looking to change orders for electric blankets and heaters which normally go to Chinese companies, to other countries like India, Bangladesh, Romania, Ukraine and Poland, Fin24 previously reported.
Meanwhile News24 reported that the South African government will repatriate 132 South Africans from the Chinese city of Wuhan, where the outbreak occurred, on their request. The South Africans have not been diagnosed with the virus, nor are they displaying symptoms. They will spend 21 days in quarantine, as an extra precaution, once they return to South Africa, according to a statement from the Presidency issued on Thursday.
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