Technology Sector Setting Up For A Crash? Part II

This image showing the size and scope of global economies may highlight just how interconnected we really are. The Chinese economy is 15.4% of the total global economy when taken as a whole compared to other global economies. Yet, China supplies a very large number of these other nations with cheap goods, essential components for industry and manufacturing as well as a very large number of everyday essential items for consumers. So, when we attempt to consider a “shut-down” of the Chinese economy as they attempt to deal with this virus, try to think about how long it would take for the supply chain to dry up and then what?

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Source: visualcapitalist.com

Try to take a moment and think about the total scope of what we’re dealing with in regards to this Corona Virus outbreak. Take a minute to review this graphic from InvestmentWatchBlog.com showing some of the “Best” US firms and how many rely on China for manufacturing/supply of critical components or generate a large portion of their revenues from China.

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Source: investmentwatchblog.com

It has been over 45 days since the end of 2019. China knew about this virus fairly early in December 2019. So, in reality, it has been over 75 days since this outbreak first started. The data accumulated by Johns Hopkins CSSE started on January 20, 2020. Since that time, China has experienced a more than 4000% increase in new Corona Virus cases – that is only about 21 days. The number of infected has risen to well over 64,000 and we believe that number (reported by the Chinese government) may be only a fraction (1/8th to 1/6th) of the real infected rate.

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Source: gisanddata.maps.arcgis.com

Not all technology companies rely on China to supply products and software. Many technology companies have strong core business enterprises that are independent of Chinese manufacturing. Yet we continue to believe the disruption in manufacturing and supply from China will disrupt forward earnings data enough to potentially send the technology sector much lower than current levels. Additionally, if capital rushes out of technology in search of a more suitable opportunity – where will that capital find a new home?

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