Demand impact of COVID 19 by sector
Big impact from COVID-19 on businesses and their decisions
UBS Evidence Lab surveyed 450 senior executives of Korean, Taiwanese and Japanese export-related businesses during 16-31 March, just as lockdowns were spreading. Firms have turned materially more negative on the business outlook, even compared to the December 2018 survey when US-China trade concerns were elevated. Almost half of respondents indicated that COVID-19 has negatively impacted demand. 30% expect demand to be affected for more than six months and most businesses don't see a strong rebound in H2. Firms in Taiwan are generally more positive than elsewhere, consistent with a more positive outlook from the Tech/consumer electronics sectors. The food & beverage sector is the clear beneficiary from the current environment with industrials and commodity-businesses most negatively affected.
Supply chain disruption is already evident
Two-thirds of businesses have already encountered supply issues. While supply chain problems are expected to be more short-lived than the demand impact (typically 2-4 months for supply), this is what differentiates this downturn with typical recessions, and potentially hampers the speed of the recovery for some companies. Within cyclicals we prefer upstream businesses like Materials to minimise the risk of supply chain disruption.
Immediate capex plans on hold, but COVID-19 increases relocation intentions
22% of respondents indicate that they will cut capex over the next 12 months, marking a sharp deterioration in intentions versus the December 2018 survey. Weaker demand and availability of financing were the primary reasons for this change. Although immediate investment intentions are on hold, 44% said that COVID-19 increases their desire to relocate their China based capacity. Compared to the previous survey, businesses also now want to take more aggressive relocation steps with a higher intention to close China capacity rather than simply downsize, and to build new facilities elsewhere too. Outside of relocating back to their home markets, Vietnam further strengthened its position as the most desired destination (31% of responses, up from 25%), with Thailand (20%) overtaking India (19%) into second spot.