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Equity markets should brace for worse to come after Apple’s coronavirus warning

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By Sam Kerr
18 Feb 2020

Apple’s announcement that it is likely to miss revenue estimates for the first quarter of 2020 should serve as a warning to equity investors that the economic effects of the coronavirus outbreak should be feared alongside any threat of it becoming a pandemic.

The company’s troubles centre around the problems it has faced at its largest iPhone plant, in Zhengzhou, China. Apple is struggling to return the factory, known as “iPhone City”, to full production because of China’s efforts to contain the outbreak of the Covid-19 strain of coronavirus.

“Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated,” Apple said in a statement on Monday.

The US tech giant’s stock was down around 2.4% on Tuesday morning, reflecting fears that the virus could have effects well beyond the domestic Chinese economy.

It is hardly a surprise that China’s national quarantine will have an effect on global supply chains. However, equity investors need to acknowledge that the economic disruption could be larger than they seem to think, and not just limited to their Chinese holdings.

Apple’s decision to announce in mid-February that it expects to miss its revenue guidance for the first three months of the year is a sign that the economic disruption from the coronavirus could well be severe. There is also little indication yet that the spread of the virus is slowing.

Medical experts have said that they expect warmer spring weather to mark, at least, the beginning of the end to the crisis but that means weeks of economic disruption until then.

Apple is far from alone in its dependence on China as a key part of its supply chain. Should there be a pronounced effect on first quarter results it could provoke at least a short-term negative reaction in equity markets.

For equity capital markets bankers in particular, this will mean they must be especially vigilant and aware of investor sentiment before bringing new deals; the difficult IPO roadshow for BW Energy this month showed how much of an effect the coronavirus outbreak can have on a new listing and the importance of timing.

Siri cannot tell us how great the extent of the human and economic cost of the epidemic will be, and nor can anyone else. It is without doubt one of the most perilous risks facing capital markets this year and investors would do well to heed these early symptoms of worsening financial health.


By Sam Kerr
18 Feb 2020