Companies with China ties start to feel virus impact

dangerous virus spreing through China threatens a wide range of industries with ties to world’s second-largest ecomy.

Chinese authorities have cut off access to Wuhan, where virus originated, and 16 or cities to prevent furr spre of virus, affecting more than 50 million people. financial and ecomic hub of Hong Kong has cut all rail links to mainland.

Many of world’s largest companies rely on Chinese consumers for revenue and factories for supplies. For example, Apple CEO Tim Cook said virus outbreak has alrey caused some of Apple’s suppliers in China to delay reopening ir factories until Feb. 10 and some stores selling products alrey have temporarily closed or reduced ir operating hours.

“ situation is emerging and we’re still garing lots of data points and monitoring it very closely,” Cook said.

virus could shave as much as 1.2 percent points off China’s ecomic growth, according to “a back of envelope calculation” by S&P Global Ratings last week. International Monetary Fund earlier this month issued a forecast for 6% growth for China in 2020.

Airlines proved to be most visible barometer of fear as virus spre. America Airlines has cut back some flights to Shanghai and Beijing because of lower demand. It’s shares, along with Delta Air Lines and United Airlines Holdings, lost ground as reports of new cases surfaced. industry h been seeing a strong demand for travel, which pushed up prices and left fewer empty seats.

Resorts, including Wynn and Las Vegas Sands slumped as virus forced travelers to cancel trips to gambling haven of Macao. Both companies get majority of ir revenue from China.

Techlogy companies, especially chipmakers, are particularly sensitive to China’s ecomic health. sector is still poised to benefit from easing of tre tensions between U.S. and China, but unkwn ecomic dam from virus in China created more uncertainty for sector.

Some retailers will likely see ir revenue reduced. Starbucks has shut down about half of its stores in China and decided to forgo raising its profit forecast. Nike and Tapestry, which owns luxury brands like Coach and Kate Spe, both get nearly 15% of ir revenue from mainland China. and stand to feel pain of a consumer pullback.

Still, market experts are reminding investors to take a long-term view.

“Revenue and earnings will be impacted, but right w it’s an impact that is very short term in nature’,” said Kristina Hooper, chief global market strategist at Invesco.

virus outbreak at moment is overshowing preliminary tre deal U.S. and China signed in mid-January that raised hopes for businesses that relations between two countries would improve. Businesses were expected to increase spending after holding back for much of 2019 because of uncertainty over tre relations.

China will likely take measures to stimulate its ecomy to make up for any dam from virus and businesses could see a strong bounce once situation stabilizes, Hooper said. In long term, U.S.-China tre relations are going to have a bigger impact on companies and global ecomy.

“That phase 1 deal doesn’t go away just because we have a virus,” Hooper said.

Picture courtesy: AP