As the coronavirus outbreak rages on, Raymond James said China’s delayed response is inciting comparisons to the Soviet Union’s response to the Chernobyl nuclear disaster, and that things could get worse in terms of economic and market impact.
China’s “slow reaction and continued unanswered questions appear to be sowing real concerns among the Chinese people,” wrote a team of Raymond James analysts led by Chris Meekins in a note to clients, which is amplifying concerns over General Secretary Xi and the Chinese Communist Party’s grip on power.
The firm said it has been “receiving questions on whether or not this will be a ‘Chernobyl-like’ event for China — the comparison being the impact of the Chernobyl nuclear power plant disaster on the fall of the Soviet Union.”
Raymond James said that following conversations with government officials and academics, it believes the “worst is yet to come” and that the “market is underappreciating the potential dangers and what the key government leaders on the virus are saying.”
The Chernobyl disaster, which occurred on April 26, 1986, was a nuclear accident that released massive amounts of radioactive material into the air. Soviet authorities were criticized for their slow response.
“If this virus becomes a true global pandemic, the actions by the Chinese leadership will come under great fire as they no doubt contributed to the spread,” Raymond James said, before adding that “the real impact will likely take years to fully measure.”
As of Feb. 17, the Chinese government said a total of 72,436 people are confirmed to have had the disease while 1,868 people have died.
The stock market, however, has recovered all of its coronavirus-induced drop and then some, with stocks surging to record highs last week.
But the market retreated on Tuesday with shares of Apple sliding more than 2%. The company said it would miss its quarterly revenue forecast thanks to constrained worldwide supply of iPhones, as well as lower Chinese demand stemming from the virus outbreak.
And Apple is just one of a number of companies that have cited the virus as a headwind for the current quarter, with many noting that it’s still too early to tell how much of an impact the virus will have.
A health worker measures the body temperature of a person during the heavy snowfall amid coronavirus fears. Coronavirus (COVID-19) has killed more than 1,500 people in China and infected more than 66,000 people.
SOPA Images | Getty Images
In the United States the CDC has confirmed 15 cases of the coronavirus outbreak. But Raymond James said it estimates that it will be between 2 weeks and 4 weeks before there’s any clarity over the spread of the disease in the U.S., and said it’s increasing its likelihood of “notable widespread cases” in the U.S. from 1 in 7 to 1 in 5.
Raymond James believes the market comeback in the last month has been a “liquidity rally” with investors hiding out in the biggest and most heavily traded stocks.
Investors “want as much liquidity as possible in case they change their mind” and have to sell because of the worsening coronavirus, the report said.
– CNBC’s Michael Bloom contributed reporting.