ValuePickr Forum

Corona Virus - Black Swan event

Novel Corona virus outbreak in Wuhan China continues to spread fast around the world. As per WHO briefing yesterday, 99% of the cases are registered in China and 80% of them in Hubei Province (Wuhan is located in Hubei province). Many companies in China have extended new year holidays till 9th Feb and there is strong possibility of very few workforce may turn up for work on 10th Feb (if they decide to start working).

China being largest producer of many goods and largest consumer of many commodities, this disruption can have short to medium term impact of many businesses who are directly or indirectly affected by China. Indian companies who use inputs imported from China would see supply disruptions/cost increases whereas companies who compete with Chinese manufacturers would see lower competition and hence higher pricing power. Also many commodities like oil, copper, Aluminum are trending lower due to lack in demand. So Indian companies which use these commodities as input will find lower input cost for months to come.

In short, this will present it as opportunity to find winners/losers due to this event (however unfortunate it is). Since Value pickr has so many domain experts, I felt we can find some short term opportunities.

I will take a jab at it at first . Winners - Indian API manufacturers (less competition), Indian steel makers (less competition and less input cost), Specialty Chemical companies,
Losers - Indian Formulation (Pharma) companies importing APIs from China,


@pradeepgoswami90 I don’t think it is unethical to take advantage of an investment opportunity arising out of Corona Virus issue. Our investing will not make the virus spread faster or increase the number of deaths. By that logic, even investing in pharmaceuticals or hospitals can be construed as unethical as they benefit from someone’s sickness. That reminds me, U.S. has listed jails! More the people who go to jail, more money you make. What can be more cruel than that?

Anyway, nobody knows where this Virus issue is heading. I think the markets are grossly underestimating the disruption risk. I am told the situation in China is far worse than what the mainstream media is reporting.

China extended the New Year holidays from 31st January to 3rd February, and later further ahead to 9th February. However, several companies have gone on an indefinite closure, as people are afraid of coming out of their homes. But with bazaars closed, transport suspended, entire cities are coming to a standstill. People are even running out of food to eat. Due to censorship, very little independent information comes out of China, and whatever comes out is only from the main cities, almost nothing is known about the hinterland.

China is the world’s single largest buyer or single largest seller in most of the commodities and a prolonged shutdown of China has the potential to cause the biggest disruption in the world economy, at least since the 2007-08 Financial Crisis.

The Baltic Dry Index, an index of shipping rates and considered to be a proxy for world goods trade has fallen more than 80% in the last 3 months. Baltic Capesize index, an index which primarily tracks iron ore shipments on the Australia – China and Brazil – China route has also fallen to negative territory. Shipping indices are considered lead indicators.

Finally, this article here gives some more information on the issue. It also has the list of Top 20 Chemicals made by China and the share of China in world production capacity by products:


CLSA Conference call with Coronavirus expert Overnight in Asia, we hosted a call with professor John Nicholls a clinical professor in pathology at the University of Hong Kong and expert on coronaviruses. He was a key member of the research team at the University of Hong Kong which isolated and characterized the novel SARS coronavirus in 2003. He’s been studying coronaviruses for 25 years (full bio here). The recording of the call can be found on our website HERE. Below are my notes transcribing the call. The first 30m are worth listening to.

Quick summary: look at the fatality rate outside of Wuhan - it’s below 1%. The correct comparison is not SARS or MERS but a bad cold which kills people who already have other health issues. This virus will burn itself out in May when temperatures rise. Wash your hands.

My notes from the call below:

Q&A Session with Professor Nicholls:

What is the actual scale of the outbreak? How much larger is it compared to the official “confirmed” cases?

People are saying a 2.2 to 2.4% fatality rate total. However recent information is very worthy - if you look at the cases outside of China the mortality rate is <1%. [Only 2 fatalities outside of mainland China]. 2 potential reasons 1) either china’s healthcare isn’t as good – that’s probably not the case 2) What is probably right is that just as with SARS there’s probably much stricter guidelines in mainland China for a case to be considered positive. So the 20,000 cases in China is probably only the severe cases; the folks that actually went to the hospital and got tested. The Chinese healthcare system is very overwhelmed with all the tests going through. So my thinking is this is actually not as severe a disease as is being suggested. The fatality rate is probably only 0.8%-1%. There’s a vast underreporting of cases in China. Compared to Sars and Mers we are talking about a coronavirus that has a mortality rate of 8 to 10 times less deadly to Sars to Mers. So a correct comparison is not Sars or Mers but a severe cold. Basically this is a severe form of the cold.

You mentioned a shortage of testing kit can you talk more about that?

There are two ways to detect a virus. 1) Through the genetic material – DNA or RNA or 2) to detect the protein of the virus. The rapid tests used in a doctors’ labs look at the protein. The problem with that is that you need an antibody to pick it up. And it takes 8-12 weeks to make commercial antibodies. So right now for the diagnostics tests they are using PCR which give you a turnaround in 1-2 hours. But then you need to run a machine and run 96 runs in 1 hour but then you have to a batch of samples so there’s another delay of 5-6 hours for patient presentation. So that will lead to some problems you can’t turnaround in 5-10m which is what you want when a patient shows up to the emergency room. Because right now you also have influenza going around so what you want is to be able to rule out influenza so you can treat the patients correctly for coronavirus. So that may be why they missed some of the earlier cases.

Your colleague at HK university estimated that the size of the infected population on Jan 25th was 75K with a doubling time of 6.4 days. So by feb first we would have 150k infected. How accurate do you think these models are and how accurate have they been in the past?

Those figures did not take into account restriction on travel, quarantine etc… These reports are likely on the high side. This is not taking into account social distancing. Historically these models have not been all that accurate.

When do you think this thing will peak? Three things the virus does not like 1) sunlight 2) temperature and 3) humidity. To make you guys really worried. A coronavirus can survive on a stainless steel surface for 36 hours. It hangs around for quite a bit.

Sunlight will cut the virus ability to grow in half so the half-life will be 2.5 minutes and in the dark it’s about 13m to 20m. Sunlight is really good at killing viruses. That’s why I believe that Australia and the southern hemisphere will not see any great infections rates because they have lots of sunlight and they are in the middle of summer. And Wuhan and Beijing is still cold which is why there’s high infection rates.

In regards to temperature, the virus can remain intact at 4 degrees or 10 degrees for a longer period of time. But at 30 degrees then you get inactivation. And High humidity the virus doesn’t like it either. That’s why I think Sars stopped around May and June in 2003 – that’s when there’s more sunlight and more humidity. The environment is a crucial factor. The environment will be unfavourable for growth around May. The evidence is to look at the common cold – it’s always during winter. So the natural environment will not be favourable in Asia in about May.

The second factor is that of personal contact. With Sars once it was discovered that the virus was spread through the fecal oral route there was much less emphasis on the masks and far more emphasis on disinfection and washing hands. HK has far more cleanliness (than China) and they are very aware of social hygiene. And other countries will be more aware of the social hygiene (than China). So in those countries you should see less outbreaks and spreading. A couple days ago the fecal-oral route of transmission was confirmed in Shenzhen. In China, most of the latrines are open- there’s more chance of phermites (?) being spread. But in other countries the sanitations systems tends to closed. My personal view is that this will be a bad cold and it will all be over by May.

People talk about the vaccine and this is the big problem that people get from movies. Where in the movie they come out with a vaccine and then three days later it’s all over the world and everybody is saved. In reality this does not happen because for a vaccine you need to go through clinical trials – is it safe and will it work. The last thing you want to do is rush a vaccine too early. If you get any severe reactions, then the anti-vaxxer will just say “I told you so”. You are talking about a working vaccine in 1 to 2 years. With SARS, in 6 months the virus was all gone and it pretty much never came back. SARS pretty much found a sweet spot of the perfect environment to develop and hasn’t come back. So no pharmaceutical company will spend millions and millions to develop a vaccine for something which may never come back. It’s Hollywood to think that vaccines will save the world. The social conditions are what will control the virus – the cleaning of hands, isolating sick people etc…

What do we know about the transmission rate? It’s been estimated around 2.2 to 2.68. What percent of the patients are transmitting while being asymptomatic?

This is a big problem when you talk about asymptomatic that means you have a good diagnostic test- where you can say they are asymptomatic (which we don’t have with this virus).

We actually looked at this with MERS where people were saying it had a high fatality. We went to Camel abattoirs and took serums from the abattoir workers and found that quite a few had low infections with no symptoms. This is what should have been done at the initial stages at the seafood market. But to do that you need a good diagnostic test. A good diagnostic test is necessary to determine to the transmission rate. Now we have normal human airways and we can now look at how long it takes the virus to replicate in that environment. And that will be very useful to determine those who are asymptomatic carriers.

Any sense of whether the estimates of the reproductive number the Ro of 2.5 or 2.7. Do you think that is high or low. What does that mean?

Measles was about 10-15 and influenza is just below 2. I think it’s about 2.2 as it’s being transmitted within the community.

Have we seen any super spreaders? We saw that with Sars and Mers.

There’s talk about that but the epidemiologists are still overwhelmed so no clear answer. But I don’t think there are any super spreaders.

What is the percentage of people transmitting the virus while being asymptomatic?

Unlike SARS, patients were symptomatic at about day 5, some of these cases may be asymptomatic until about day 7. That’s based on the first publications. Asymptomatic is probably the first 5 days.

There’s a paper published looking a familial cluster with a boy who was shedding the virus and he was asymptomatic.

That’s something about kids and we saw this with Sars. Very few kids had very severe disease. We are trying to determine if this is a virus which we call low (unintelligible) kind of inducer or high (unintelligible) kind of inducer. SARS is high [unintelligible] kind of inducer. This means that when it infects the lower part of the lung, the body develops a very severe reaction against it and leads to lots of inflation and scarring. In SARS what we found is that after the first 10 to 15 days it wasn’t the virus killing the patients it was the body’s reaction.

We are doing testing on this now. Is this virus in the MERS or SARS kind picture or is this the other type of virus which is a milder coronavirus like the NL63 or the 229. I think this will be a mild (unintelligible) kind inducer.

Case fatality is about 2.5% or so? Do you expect this to change over time? And are you seeing any difference among the young population and older population in terms or mortality rate?

SARS went really for people in their 30 or 50 years. And MERS on the other hand basically is if you have co-morbidity – try and find somebody in the middle east who does not smoke or does not have high blood pressure etc… The data coming out of China seems to indicate that it’s those with the co-morbidity are most at risk. For the seasonal influenza that’s also what we find. It’s the people with the co-morbidity that have the increase mortality rate


My 2 cents:
Wuhan is a big Steel producer. So, the current disruption in production with reduce Iron ore and coal price. And will increase steel prices. It will reduce Soybean price and cotton as China is a big importer.


There would be impact for sure. China being the biggest steel producer and hence bigger consumer of iron ore/coking coal etc. Any negative impact on Chinese economy would reduce global steel demand thereby reducing demand for iron ore. This would be good news for Indian steel companies who import iron ore/coking coal (who don’t have captive mines). It would be margin positive for them. On the flip side, overall reduced steel demand means there could be global over supply which may keep steel prices under check. (possibility of increased steel imports from Korea/Japan into India)

Similar forces would be in play for graphite players. China is not only bigger steel producer but also bigger graphite electrode producer (which is required for electric furnaces). So demand as well as supply for graphite would go down. Now we need to know whether China was net exporter or importer of graphite in last 6 months to understand its impact on Indian graphite producers like HEG and Graphite India. It also depends of which geographical regions these factories are located. So lots of moving parts to this equation.

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China is one of the largest rubber chemical supplier in world. It dump 70% into other country. In case of india 40% market depend on china and recently antidumping duty has been reduce. If shortage happened then it can help indian rubber chemical company like NOCIL, OCCL.

Very important that we see everything in the market through the lens of game theory and second level thinking…

What is the common knowledge right now about the coronavirus situation?

  1. China is massively under reporting the infected cases. Whatever is the official number, multiply that by 5
  2. The fatality rate of nCOV is way lower than what was observed for other outbreaks. This is likely to harm but not severely impact from a health point of view
  3. China is the biggest consumer of commodities and the largest exporter for most intermediate products across sectors
  4. China will see an inflation spike and a massive fall in discretionary spending over the next few months till normalcy resumes
  5. China shutdown will lead to supply disruptions for most countries leading to shortages of intermediate products and demand collapse for commodities
  6. Whatever happens will be short term in nature, over 2 Quarters at the maximum things should start creeping back to normalcy

What is that we know which the market does not know? The nCOV thing has been in the media for weeks now, without specific insights it is very difficult to come to play this. Obvious trades like buying Divis Labs and Aarti Industries were done 2 weeks ago :slight_smile:

I am keenly watching FX market and Bond markets for indications if this threat is more serious than is being expected to be. I am watching the AUD, RMB and Chinese Central bank actions more than anything else over the past 1M. FX & bond markets price in macro changes in a matter of minutes, equity markets are firstly bottom up thinkers - they take more time to calibrate to macro changes


I have put together a list of companies that may outperform due to low dependency on China:

Ballpark figures only - May not be accurate. Do let me know if you find any major discrepancy
*All figures in crores

The ones where Q3 results are out, there is one less extra event to worry about.

Small-cap companies from the list would involve higher risk so do consider your risk appetite if you refer this.

Few other stocks I am tracking/invested in related to this situation include (Be careful as not all might have clean management etc. and are probably a short term play):
Poddar Pigments

Views welcome.


Exports to China?..or other countries…

What do you think about NOCIL ? What I understand is that Benzene the key Raw Material is available liberally everywhere, so it is not a problem. Meanwhile, since they compete with China in Indian and export markets, any disruption in Chinese exports will directly benefit them. The stock has been falling but I am not sure why. (Disc.: Invested)

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@axiskumar - With reference to column headers
Imports -> Overall imports of the company
Imports from China -> % of overall imports of the company
Exports -> Overall exports of the company

@Chandragupta - NOCIL (or even OCCL in similar business) are heavily dependent on Auto industry which is not a necessity. The coronavirus situation doesn’t seem to be helping that since even if one component faces shortage, overall manufacturing of automobiles shall be curtailed and there is high probability of few components at least being dependent on China. Additionally, Chinese demand of automobiles may remain subdued for some time as they recover from Coronavirus even after Chinese production ramps up.

Overall, I feel that Coronovirus situation may have peaked basis below trends:

Risks in the above assumption on Coronavirus recovery trend include:

  • Nos. being officially suppressed by China
  • Nos. could be suppressed due to people not reporting it on account of fear of getting quarantined or being locked or “welded” at home



Thanks for the clarification !

Thank you for sharing this valuable information.

Minor corrections -

  • Aarti Ind - Q3 Result 12th Feb
  • Asahi - Q3 Result 12th Feb

By the way… what’s the source of import/export data?


Rectified Aarti results date
Asahi Songwan is the one referred to for which results are already out

Import/export data is from FY19 financials of the respective companies and importgenius

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I don’t agree. Firstly Wuhan is not even 5 pc of total capacity. Plus there is a supply chain glut of excess inventory predating n-cov. I don’t think we can count on n-cov to suddenly drive up steel prices in absence of demand from other sectors. Plus there is a downside of overall demand worsening in absence of economic activity in China.

I don’t see a sure shot play. Rather the downsides outweigh the upside. You would have seen that JSW and Tata Steel have both cup capex expansion plans recently for next FY.

Not commodities like steel but essentials like pharma and chemicals may have structural changes in short term and long term. In short term, global companies will look for alternative sources which may convert into long term relationship as a 2nd vendor.

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