• Since mid-December an outbreak of a pneumonia-like new virus has been reported in the Chinese city of Wuhan (population 11mn). Genomic data was made publicly available in mid-January enabling scientists to study its genetic fingerprint.
• Officially known as 2019-nCOV by the WHO, the virus’ genetic makeup is similar (70%) to the deadly SARS virus (Severe Acute Respiratory Syndrome) but “appears clinically milder” in terms of severity, fatality rate and transmissibility.
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• Since mid-December an outbreak of a pneumonia-like new virus has been reported in the Chinese city of Wuhan (population 11mn). Genomic data was made publicly available in mid-January enabling scientists to study its genetic fingerprint.
• Officially known as 2019-nCOV by the WHO, the virus’ genetic makeup is similar (70%) to the deadly SARS virus (Severe Acute Respiratory Syndrome) but “appears clinically milder” in terms of severity, fatality rate and transmissibility.
• Coronavirus, are a large family of Pathogens (microorganism that can cause disease) with some causing less-severe diseases as the common cold, while others causing severe diseases like SARS that transmit easily. New ones emerge periodically, and several known coronaviruses are circulating in animals that haven’t infected humans.
• Main symptoms of 2019ncov are lung lesions (damage in tissue), fever, fatigue, dry cough and difficulty in breathing. The table below shows the cases and estimated death tolls.
• So far about 280 cases have been officially confirmed (news reports put this at more than 600) and 17 deaths. Virus discovery can vary however, for example HIV was not identified for years.
Table 1: Past Asian Epidemics
Source: WHO, Macro Hive
• The exact source and transmission routes of the virus are still unknown.
• Wuhan is now quarantined, no one will be allowed to enter or leave as of 10am Thursday
Table 2:Countries, Territories, or Areas with Reported Confirmed Cases of 2019-nCov, 2019
Source: WHO
Market Implications
• China was severely criticized in 2002 for covering up SARS. The deadly virus cut an estimated 0.8pp from China’s GDP growth in 2003 according to NBS estimates, and studies put the cost of the epidemic at $40bn globally.
• China’s tourism, transportation and retail sectors were hit heavily from SARS. Domestic consumption, real estate prices and financial markets all suffered.
• At the height of the SARS epidemic, the US stock market corrected. From November 2002 to March 2003 the S&P and Dow dropped by around -17%. There was also impact of Iraq war weighing in on the market as the same time.
• However, this time around better information sharing, less severe cases and joint efforts to contain the impact across countries has seen stocks in Asia (-3%), Europe (-0.5%) and the US (-0.5%) bounce back after an initial sell off. The Asia Pacific airline index is down about -7%.
• Some bioengineering and pharmaceutical companies as well as mask makers in China, not directly accessible to international investors, saw stocks surge by about +10%.
• Looking at several different disease outbreaks, we find that after an initial weekly (-4% to-7%) and monthly (-5% to -10%) sell off, 60 days after the news of the epidemic broke, the S&P500, 10y UST, JPYUSD and VIX had shrugged it off. One exception was the SARS virus in 2002/03, where market remained down by -11% over 60 days. However, it is difficult to isolate the impact of such events from other factors influencing price action.
• In Asia too the effects can’t entirely be isolated on the basis of epidemic news. Markets recovered in line with global markets, the Hang Seng’s weekly sell off ranged between -2% to -6% and the monthly move of 2% to -13%.
Manan is a macro researcher with 8 years of experience on the sell-side including Nomura & J.P Morgan. At Nomura, he specialised in scenario analysis for G10 and major EM economies.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)