Thread by @Trinhnomics

Good morning Hong Kong🌞!!! Opened inbox & was told that @Trinhnomics take on the corona virus impact on Southeast Asia was the second most read piece EVER for its 1st wk debut ☺️🤓😎👇🏻👇🏻👇🏻

@CarnegieEndow @natixis

carnegieendowment.org/2020/02/13/eco…

@CarnegieEndow @natixis So what's going on w/ the virus? Well, well, well, seems like it's spreading FAST outside of China & "contained" ex-Hubei in the mainland 🧐.

South Korea cases are 602 & 6 deaths & 18 recovered. Italy got 157 & 3 deaths. Both SK & IT are big economically (1.5trnSK & 2trn IT)

@CarnegieEndow @natixis Note that the decline of reporting of infection inside mainland China=the rise of resumption of economic activity. The trade-off b/n containing the virus & a flat lining economy is a difficult decision. Data shows some improvement of steel, property transactions to -70%ish levels

@CarnegieEndow @natixis That means that economic activities should gradually resume but still sub normal by a long margin so expect decline in retail sales/transport & disruption of supply chain & production to be continued.

On the policy side, both fiscal & monetary policy are deployed but targeted...

@CarnegieEndow @natixis Broad rate-cut is small-ish so far & needs more. Targeted support includes local gov bond issuance, waiting social security contributions by SMEs in Hubei from Feb-June, lower prices of electricity & natural gas. MoF allow local gov’ts to cut corporate medical insurance payments

@CarnegieEndow @natixis If u take an excel sheet & count all the local gov + central gov + PBOC + MOF + NDRC easing of either rates, regulations or payments, then you can see that more is needed for the decline of economic activity.

What's most key is really the willingness of people to take RISK & so

@CarnegieEndow @natixis The key part for mainland China activity resumption is the rate of confirmed & fatality etc outside Hubei. Today is 24 Feb 2020 & a month since Wuhan lock-down & we're still not back 100%...

Beyond China, let's talk about South Korea & also Japan (and of course Southeast Asia).

@CarnegieEndow @natixis Note that in comparison to the GFC, the easy so far is not proportionate to the level of debt inside China & the level of dependency on DOMESTIC DEMAND.

Anyway, let's move on. China is #1 of Asia in economic size & Japan is #2 & South Korea is #4 (India higher).

So? SK got 602!

@CarnegieEndow @natixis So if u just look from the outside, then u must know that we're looking at NOT JUST SUPPLY BUT DEMAND IMPACT, & not just demand from China falling but South Korea & Japan IN THEMSELVES.

And these are globally significant markets - not just for Asia but the world.

@CarnegieEndow @natixis So the write-up talks about the spillover from China, which is still on-going but on top of WEAK EXTERNAL DEMAND of China, Houston we got a domestic problem.

As South Korea's my bread & butter. Let's discuss! SK growth slowed to 2% in 2019 & got double digits decline of exports.

@CarnegieEndow @natixis Pres Moon policy to tax large corporates via higher taxes + higher wage costs = corporate profits WORSE IN NORTH ASIA in H1 2019. So they cope by offshoring to Vietnam.

That leaves weak domestic demand onshore as SMEs suffer too. OK, and then the trade-war hits & then the virus.

@CarnegieEndow @natixis For Korea, Chinese tourists are top customers but as a share of GDP small so key for region & sectors impacted but not the econ. What matters for Korea is the tech cycle, industrial cycle & EXTERNAL demand. Domestic demand important of course but hasn't been a source of growth.

@CarnegieEndow @natixis The spillover from China is both demand (less demand of volume of stuff) & supply (disruption to value chain in mainland China investment + import disruption to Vietnam + import disruption to SK).

Btw b/c domestic demand isn't a source of growth does not mean it is not important

@CarnegieEndow @natixis Domestic demand is key & so what we have here is now although the infection is in CLUSTERS, it will have a ripple effect of people wearing masks, being cautious, avoiding flying/crowds etc.

What's the impact of this? Weaker consumption. So what? It means HELP IS NEEDED!!!

@CarnegieEndow @natixis Will continue this thread later. FYI: I got 2 TV appearances this wk (likely both via Skype):

a) Chanel News Asia at 915am on 26 Feb to discuss Southeast Asia & the corona virus

b) CNBC International at 1130am on 27 Feb on South Korea & postmortem analysis of BOK decision 🇰🇷