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What We Really Want to Know When Wuhan Reopens

Shuli Ren

(Bloomberg Opinion) -- The rainy, misty early April is the season we Chinese mourn our dead. As the lockdown lifts in the epicenter of the coronavirus outbreak, just in time for Wuhan's famous cherry blossoms, many of us want to know how many lives the virus claimed.

Official statistics put Wuhan at more than 50,000 infected cases and just over 2,300 dead. But Caixin, an influential news outlet, reported that a shortage of testing kits and overflowing hospitals could mean actual figures are much higher, as many of the ill spent their final hours at home. To get to the bottom of this, you’d have to collect data from local district offices, and Wuhan has 2,033 administrative zones.

This information vacuum touches all aspects of society, even stock investing. Unless we can travel around to conduct due diligence — still very difficult — we have no sense of how bad the economy is. Beijing may have staved off a cliff-dropping bear run earlier this year by keeping a lid on vital information, but officials did themselves no favors by making the equity market an unpalatable investment destination.

High-frequency macro statistics such as unemployment can give us a sense of how the virus ravages consumer confidence, which underpins earnings for key sectors including technology and discretionary products. U.S. investors get their hands on this kind of data very quickly. Thanks to weekly statistics published by the Department of Labor, we know the virus claimed about 10 million jobs in just two weeks, the worst on record. Good luck finding the equivalent in China.

The National Bureau of Statistics surveys the urban unemployment rate only monthly. Even then, its result is almost certainly skewed to the sunny side, because it doesn’t cover enough of the private businesses that are more likely to lay off workers. In reality, a whopping 130 million jobs may be at risk, estimates HSBC Holdings Plc, and that’s just in the urban retail and restaurant sectors.

The March survey number could give us some insight, but we won’t see that until April 17. Even before the worst of the global virus outbreak, China's jobless rate had jumped by almost one percentage point to 6.2% in February, the highest on record.

Then consider efforts to get back to work, with Hubei province — home to Wuhan — reopening Wednesday. China has proudly announced that almost all employees at large industrial enterprises have restarted. But a return to work doesn’t equate to a return to production, or a return to sales, which we have very little data on.

Intuitively, we know the picture can’t be pretty. Many exporters in China can’t earn revenue until their goods are delivered. As the virus takes spreads globally, overseas demand is sinking and transportation time is lengthening. So China Inc.’s return to work is actually terrible news for stocks, because companies not only can’t make money but have to pay all the operational fixed costs.

In other markets, earnings estimates can serve as a useful guide. During the global financial crisis, for instance, the S&P 500 Index bottomed at about the same time as analysts’ one-year forward earnings expectations. That’s never been the case with Chinese stocks, and is unlikely to change because due diligence is hard work.

This explains why, despite the good news out of Wuhan, any talk of revival in China’s stock market has been conspicuously absent. The benchmark CSI 300 Index has been range-bound lately, down about 7% for the year — there’s simply no information to trade on. By comparison, a mere leveling of New York’s coronavirus fatalities has already gotten U.S. investors excited.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.

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