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Coronavirus: Potential Gainers From The Tragedy

Feb. 06, 2020 1:32 PM ETEDU, GOTU, NIO, NTES, TAL, TCEHY, TCTZF, TSLA33 Comments
Aiden Research profile picture
Aiden Research


  • The Coronavirus breakout in China hurts the economy but may benefit certain sectors/companies.
  • Online gaming will be the #1 beneficiary of this public health emergency.
  • Online education is also likely to benefit from the situation.
  • The automobile industry is likely to recover fast and benefit from this in the mid-to-long term.

Source: The virus has sickened more than 28,200 people in Asia

Investment Thesis

The Coronavirus breakout in China brought challenges to the Chinese economy in the short term, but it also could benefit certain sectors/companies. We are overall confident about the Chinese government's capability in controlling the situation, and propose our positive views on certain stocks that investors can watch during this special period.

Overall Assessment of the Situation

Undoubtedly, the Coronavirus breakout is the most significant public affair in China now. Originated in Wuhan, the virus is now spread all across the nation and has caused more deaths than that from the severe acute respiratory syndrome outbreak in 2002 and 2003 in mainland China.

The breakout not only brings concerns on public health, but also has a major impact on China's economy. As required by the Chinese government, companies will have to postpone the starting date after the Spring Festival. Airline companies are facing sharply declined demand, or even forced cancellation of flights. Tourism, food chains, and many other consumer industries will take the hit, since people are recommended to quarantine at home as much as possible.

On the other hand, the Chinese government has been called out for efficiency and transparency in handling this emergency. Unlike SARS in 2003, people now have access to real-time updates on the number of infected cases, as well as confirmed death and cured ones. The government essentially "locked down" Wuhan on January 23rd, which may sound crucial but is proven to be the most effective approach in preventing a national disaster. So far, nearly 70% of the confirmed infections and 96% of the deaths are within Hubei province. The miracle of building a hospital within 10 days should also add to people's confidence in the Chinese government in fighting this emergency.


This article was written by

Aiden Research profile picture
As an independent research firm, we focus on China Opportunities, from either US-listed Chinese Companies, or US companies' operation in China. Our mission is to help bridge the huge information gap between China and global investors.

Analyst’s Disclosure: I am/we are long NIO, GSX, TCEHY, NTES. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (33)

Hi Aiden research can you write an article of the major API producers in the USA who the listed players could be?as 25%-28% APIs only are produced in US,rest is only dependent on china ,this trade war,corona virus thing will surely put huge pressure on US companies,its good if trump helps those companies through further cuts and benefits.
"Another industry that may potentially benefit from the emergency is the automobile sector."

I'm scratching my head over this. The automobile industry's supply chain is heavily based in China. Those factories for automobile parts are all shut down and will remain so. That will stop them from producing cars. Witness Hyundai just shut down all global manufacturing of their automobiles from lack of Chinese parts. I read that the major American producers have roughly two weeks of spare parts until they have to shut down production. I don't understand how not being able to produce cars to sell is going to help the automobile industry?
"The government essentially "locked down" Wuhan on January 23rd, which may sound crucial (sic) but is proven to be the most effective approach in preventing a national disaster."

5 million people got out of Wuhan the day before the quarantine went into effect. It also already spread to several major cities by that date. If that is your basis for the quarantine working, it is dead wrong. The quarantine has completely failed.
@mako69 400 million now under quarantine - US market will crash when they start reporting deaths here.
@Aiden Research or anyone else. Please do a more detailed analysis of how long and how harsh we expect the impact of Corona Virus to be. Real data with real math. Here is my cocktail analysis based on international live data at bottom. Anyone, please shoot holes in it. Based on what I see so far, EVERYONE will be terrified of travel. I am shorting Cruise line CCL right now.

638 deaths Right now with 31,523 confirmed cases so far
That is an unscientific 2.02% death rate. Unknown if cases are much higher, which would lower the death rate, or deaths to remaining cases continue to happen which would increase death rate. Very unscientific.

Assume it spreads like flu ~10% of US population each year.
330million x 10% of population = 33million contraction
33million x 2% death rate = 660,000 deaths nationally.

@Micro Magic Goldman thinks 2% shaved off GDP, it is already worse than they thought so good chance we get a worldwide recession or possibly depression depending on how bad this gets
@Micro Magic The current numbers of coronavirus infections are understated by a factor of 10 at least. Reputable estimates (Lancet) put the current infection numbers above 300,000 and will double every 6.3 days.

flu vs corona virus comparison

1) If memory serves, the flu has an RO of 1.28, the coronavirus has an RO of 2.5-3.5 (nobody is sure yet). That means the coronavirus is roughly 2 to 3 times more contagious than the flu.

2) The flu kills about 0.1% of people, the coronavirus kills 3%+, so that makes it roughly 30 times more deadly.

3) Those who need hospitalization in an ICU are about 1% for the flu and 20% for the coronavirus.

The entire Chinese economy has come to a screeching halt. It is frozen solid. 150 million under imposed quarantine and everybody else under self-imposed quarantine. This has never happened in human history, you are witnessing a Black Swan Event. The streets are deserted and very few deliveries are being made. The factories, stores (except for grocery), schools and government offices are all shut down. This will probably go on for at least two more months, best case, but probably longer. The Lancet predicts that Wuhan will peak in mid April and other Chinese cities in mid-May.

This will be catastrophic to the Chinese economy and the world supply chain.
@mako69 Thanks for input. What is the risk of it spreading to Eurozone or USA? Won't we get the same thing but a few months later? Or is it contained? Any indications either way.
Even as a bullish person about EVs in China i'm not confident with this author's logic on EV's benefiting from this virus
HUYA benefits, long HUYA
Dr. Piz profile picture
I want to get in on a long position NIO, but not sure when? Below $4???
Dr. Piz profile picture
Or below $3?
Value Yield Investing profile picture
i see my people around me are trying to sell NIO cars at discount (or you can call "dump" or "fire sale"). That should tell you something.
If a bunch of people die how does that help the auto industry?
I don't know what to gain from this article. Not worth reading.
Pierre Rossouw profile picture
You need to make the connection between production and inability to be productive and death. That simple.
Joe Blast profile picture
Yes, Tesla will lose less money if they go through a period without having to make cars at a loss. The labor savings alone could push shares above $1000.
Crude Man profile picture
I disagree on the automobile sector. The people who don't have cars either can't afford them or don't see the need for one. Those that can afford them that didn't see the need before are likely not getting work done during this time, which means their finances are taking a hit. You don't go months without working or with reduced income and then decide to go buy an overpriced niche market vehicle.
GoldenSamurai profile picture
I fully agree. If a Chinese worker needs to get from place A to place B, he does not need a Tesla. A small city car from a local Chinese automaker should be more than enough.
Aiden Research profile picture
@Crude Man
Thanks for your response!
I agree with your thoughts on people with just the commute demand for work. But people with family, especially children, will feel the pain of public transportation in such a special period. With the restrictions on gas autos, EVs will be a natural choice for them.
@Aiden Research So during a pandemic people will buy overpriced EV's? LOL sure that makes sense, especially when the places to buy the cars are shut down.
might add SCPL to that list. they have not posted Q4 earnings yet, but should soon.
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