Virus Outbreak Hits Global Stock Markets Hard

Will the coronavirus outbreak that started in the Chinese city of Wuhan, Hubei turn out to be just the latest panic attack that provides yet another buying opportunity for stock investors? Fears that it could turn into a pandemic knocked stocks prices down last week, especially on Friday, and at the start of trading today. What’s the difference between an epidemic and a pandemic? The former occurs when a disease either affects more people than usual within a locality or spreads beyond its usual locality. A pandemic is an epidemic of worldwide proportions. The recent coronavirus outbreak has the potential to turn into a pandemic since it has already spread beyond China’s borders.

So far, it seems comparable to previous outbreaks of viruses, including:

(1) SARS. The Severe Acute Respiratory Syndrome (SARS) outbreak of 2003–04 in China. It spread worldwide within a few months, but it was quickly contained. SARS is a virus transmitted through droplets that enter the air when someone with the disease coughs, sneezes, or talks. No known transmission has occurred since 2004.

 (2) MERS. Middle East Respiratory Syndrome (MERS) is a contagious, sometimes fatal respiratory illness. It’s often spread through close contact with an infected person. Symptoms include fever, cough, shortness of breath, and sometimes nausea, vomiting, and diarrhea. The disease was first identified in Saudi Arabia in 2012.

 (3) EVD. Ebola Virus Disease (EVD)—a.k.a. “Ebola hemorrhagic fever” (EHF) or simply “Ebola”—is a viral hemorrhagic fever of humans and other primates caused by Ebola viruses. The 2014–16 outbreak in West Africa was the largest and most complex Ebola outbreak since the virus was first discovered in 1976. There were more cases and deaths in this outbreak than all others combined. It also spread between countries, starting in Guinea then moving across land borders to Sierra Leone and Liberia.

All three outbreaks were contained before they could have a significant impact on the global economy or financial markets around the world. For now, I expect the same outcome with the current outbreak.

In any event, I am not a virologists, and the news over the weekend suggested that the problem may be harder to contain than the three outbreaks listed above. Consider the following:

(1) Spreading rapidly. The 1/26 issue of the Washington Post reported that the spread of the coronavirus—named “2019-nCoV”—is accelerating. The rate of infection has been increasing daily in China, with a 50% jump in cases on Sunday to almost 2,000 people, and a similar leap expected on Monday. So far, more than 50 million people have been placed on lockdown in central China. A travel ban covers 16 cities in central Hubei province, which is the epicenter of the outbreak.

(2) Adapting fast. The article stated: “Scientists have already noticed that the virus is adapting to humans much faster than its predecessor, the SARS (severe acute respiratory syndrome) coronavirus. That outbreak killed more than 750 people in 2002-2003. It took the SARS virus three months to mutate into a form that spread easily among humans, but the related Wuhan coronavirus took only one month…”

(3) Negative economic consequences. If the virus continues to spread rapidly, especially in China, the economic and political consequences could be bad news for China’s rulers if it leads to social unrest. I have to admit that I am somewhat concerned about the potential global economic and financial implications as well. I’ve observed before that wars that have disrupted global commerce historically have had negative consequences for the global economy. Pandemics can have similar negative consequences.

(4) Not as bad as the flu, so far. On a worldwide basis, 2,102 cases with 56 deaths attributable to 2019-nCoV have been confirmed through Sunday. By comparison, the Centers for Disease Control and Prevention (CDC) estimates that influenza has resulted in 9 million–45 million illnesses, 140,000–810,000 hospitalizations, and 12,000–61,000 deaths annually from 2010 through 2017 in the US alone. Preliminarily, the CDC estimates that 80,000 Americans died of the flu and its complications last winter—the disease’s highest death toll in at least four decades. The flu is also caused by a coronavirus.

(5) Real-time dashboard. The Johns Hopkins Center for Systems Science and Engineering regularly updates its online dashboard for tracking the worldwide spread of the Wuhan coronavirus outbreak. The data visualization reflects statistics collected from multiple sources, including the World Health Organization, the Centers for Disease Control and Prevention, the National Health Commission of the People’s Republic of China, and Ding Xiang Yuan, a social networking site for health care professionals that provides real-time information on cases.

Dr. Ed is one of LinkedIn's 2019 Top Voices in economy & finance. Institutional investors may sign-up at https://lnkd.in/eYNwch8 for a trial to his research service. His book, "Predicting the Markets," is on Amazon. He's next book, "Fed Watching for Fun & Profit," will be available in February.

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