Coronavirus Flu - Impact on the market
Following a very strong start to the year for the markets, the latest flu outbreak has triggered some selling. Given the uncertain nature of the outcome of a flu virus, it can attract headlines.
We provide some analysis of the potential impact below:
1. Historically, we have a precedent with the SARS outbreak which killed 813 people with a mortality rate of 9.6%. At this point the coronavirus has a mortality rate of 3.2%—so looks less severe, however, it is still in the early stages.
2. During SARS the Chinese Government was secretive and tried to hide the fact until it was too late. This time they have been more transparent and taken aggressive actions to contain the virus including locking down a city with 11 million people.
3. Historically, stocks and economies recover quite quickly from this type of event. From an economic perspective, SARS took around 1% off the economic growth in 2003 but had no lasting impact on the economy. For stocks exposed to tourism and China, there can be a short term hit to profits but we would not expect it to be long-lasting (and therefore not impact the long term cash flows from which we value businesses).
4. From a trading perspective, the markets have enjoyed the strong start to the year, and therefore can be vulnerable to a pick-up in volatility. We would expect concerns regarding the virus to remain at the forefront of markets until signs that the growth rate has peaked (which typically can take a couple of months). We will be looking for good quality businesses that become oversold during this period. The chart below highlights one company’s projection of a likely number of infections (without any intervention). If the rate of growth slows in a number of infections, then this would be a helpful lead indicator for markets.
Coronavirus model projections
Source: Alpine Macro
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Number of cases
As of this morning, 31 January 2020, 9 cases of 2019-nCoV have been confirmed in Australia: 2 in Queensland, 3 in Victoria, and 4 in New South Wales.
Australian health authorities continue to test any people who show symptoms of the virus. To date more than 200 people have been tested.
Questions about this, and about the welfare of people with the virus, should be directed to state and territory health authorities.
Internationally, approximately 7,834 confirmed cases of 2019-nCoV, and 170 deaths have been reported - a 2.17% fatality rate.
The World Health Organization's (WHO) International Health Regulations Emergency Committee has now declared the outbreak of 2019-nCoV a Public Health Emergency of International Concern.
Australia is well prepared for the new advice and is already implementing the WHO measures. The Australian Government is taking a highly precautionary approach based on the latest and best medical advice.
The WHO advised that further international exportation of cases may appear in any country. All countries should prepare for containment. This means:
actively surveying people at risk so they can detect cases early
isolating and managing any cases
tracing contact and preventing onward spread of infection
sharing full data with WHO
The WHO has recommended that the novel coronavirus be officially named “2019-nCoV acute respiratory disease”.
What we are doing
Australia remains vigilant about this virus and how it is developing.
We are very well prepared. We already have in place border, isolation, surveillance and case tracing mechanisms.
Our health emergency response arrangements are flexible and scalable. They will be tailored to respond to the situation as we learn more about the virus and how it spreads.
The Government has provided its advice to Australians about the novel coronavirus, based on the latest medical advice.
People who have been in contact with confirmed novel coronavirus cases must be isolated in their home for 14 days after exposure.
Returned travellers who have been in Hubei Province of China must be isolated in their home for 14 days after leaving Hubei Province other than for seeking individual medical care.
On 29 January 2020, the Department of Foreign Affairs and Trade (DFAT) raised the level of travel advice for China to 'level 3 – reconsider your need to travel'.
On 24 January, it raised the level of travel advice for Wuhan and Hubei Province in China to ‘level 4 – do not travel’.
The Australian Government is making arrangements to help isolated and vulnerable Australian citizens leave Wuhan.
The Government is working to identify Australian citizens in China who may meet requirements for repatriation.
The Government is standing up a quarantine facility on Christmas Island where people will be quarantined for 14 days.
This approach will ensure that people coming from Wuhan can be monitored for illness. It will protect the safety of the broader Australian community and the Christmas Island community.
Health and biosecurity experts will advise on appropriate quarantine and medical arrangements for the facility.
After 14 days and once medically cleared, the Australian Government will enable quarantined people to return to their homes in Australia.
For more information
For more information, return to our main coronavirus landing page.
Are you feeling unwell? You can visit HealthDirect for more information about symptoms. People with serious symptoms – a fever, cough, difficulty breathing, sore throat, tiredness – should call 000.