Volume 91 No. 2 - February 2020
Viruses are scary. When they emerge, they grip our attention.
The Wuhan Coronavirus, first identified in Wuhan, China in December, has captured headlines, generating fears, precautions, and misinformation.
But, what are coronaviruses? What’s a novel coronavirus? What has the Wuhan Coronavirus done to global financial markets? Should we be concerned? Read on for our perspective.
What Is a Coronavirus?
Coronaviruses are a family of viruses that, when viewed under a microscope, resemble crowns. Many types of coronaviruses exist, like SARS or MERS. Last month, the World Health Organization (WHO) identified a new coronavirus—called a novel coronavirus—following the outbreak in Wuhan, China in December. The media started calling it the Wuhan coronavirus. Health officials named it 2019-nCov. This novel coronavirus is new to science and, like MERS and SARS before it, may also be a virus that jumped species to infect humans.
How Bad Is This Outbreak?
As of this writing in early February, 28 countries have reported cases of the Wuhan coronavirus within their borders. Despite this statistic, nearly all of the 20,000 cases worldwide are found in China. Just 120 infections (less than 1% of the worldwide total) are found outside China, in those other 27 countries. As of February 3, just 11 cases have been identified in the United States.
Coronavirus has killed about 450 people globally, all but one in China. Contrast that with the 19 million in the US who have been infected with the flu this season and the 10,000 who have died, and the impact of the Wuhan Coronavirus starts to coalesce into a clearer picture. It’s also worth noting that while the unknown, in this case, a novel coronavirus, is scary, advances in medical technology and knowledge mean that largescale impacts like those seen in the Spanish Flu and the Black Plague are unlikely.
Wuhan Coronavirus and Financial Markets
China has clearly faced the worst of the novel coronavirus’ effects. Chinese markets sank some 8% on Monday, February 3, the first day they reopened since January 23, following Lunar New Year. Outside China, the virus has created fears and uncertainty as it has disrupted supply chains and forced multinationals to make some hard decisions while facing a lot of unknowns. Flights have been canceled. Travel has been restricted. People are being quarantined.
The impact of the Wuhan Coronavirus has been wide-ranging. Notably, oil prices have sunk so far (16%) since news of the outbreak first hit the media that Saudi Arabia is trying to summon an emergency OPEC meeting to discuss falling prices. In the US, the DJIA is down about 3.7% and flat for the year since it hit record territory in mid-January.
What Are Governments Doing?
International media has been quick to criticize the measures that Chinese authorities have put into place to contain the virus and the speed at which those measures have come. However, 1,400 medical staff members of the People’s Liberation Army arrived at the new 1,000-bed Huoshenshan Hospital early in February to treat Wuhan Coronavirus patients, just 10 days after ground was broken to build the hospital. So, the Chinese government is clearly prioritizing efforts to treat the virus.
In the US, travel restrictions now temporarily bar non-US citizens who have been in China recently from entering the US. Americans who have visited Hubei in the last fourteen days can return, but face being quarantined. Americans who have visited other areas of China recently are required to quarantine themselves at home.
Economic Impacts
Investors are carefully watching the spread of the Wuhan Coronavirus. When the World Health Organization declared Wuhan Coronavirus a global health crisis, global equities fell 2.5% overall and more than 5% in emerging markets. In the US, interest rates fell about 18 basis points late last month to 1.51%, 41 basis points lower than where they started 2020.
As news of the Wuhan Coronavirus spread, US stocks sunk 1.5% on January 27, while media explained how US multinationals like Apple, Disney, Starbucks, and Ford began taking notice of the virus, closing stores, slowing and halting operations, and pulling employees off international flights.
When China sneezes…
When China sneezes, the rest of the world turns to look. This is especially true as China’s impact on world markets has rocketed ahead since the SARS outbreak at the turn of the century. Today, China’s trade lines and its influence in our supply chains mean that an economic event there can reverberate quickly across the world.
Despite this, past health epidemics have not had a lasting impact on financial markets. This history suggests that the Wuhan Coronavirus will be no different. A study of past epidemics by J. Reed Murphy, Chief Investment Officer at Illinois-based Calamos Wealth Management, examined the economic impact of flu, plague, smallpox, and Ebola from 1957 onwards. He found that, while US markets suffer downturns averaging 0.7% one month after an outbreak, stocks generally rebound soon after and end 10% up a year later. Global markets posted similar results.
Keep Calm and Carry On
It’s human instinct to fear the unknown. Viruses, especially those new to science, can be scary, from personal, societal, and economic perspectives. History shows us that health scares have had little long-term impact on the economy.
However, while we often watch for news of job growth, inflation, corporate earnings, or elections that may impact the markets, it’s smart to also have a plan for unexpected events, like viruses. Like preparing for exposure to the common cold by taking precautions like washing your hands, preparing for unexpected economic events can take the form of well-balanced, diversified portfolios and well-thought-out buy-and-hold strategies.
The Wuhan Coronavirus has our attention. We should also remember, however, that while the coronavirus has killed some 450 worldwide and sickened about 20,000, the flu has already killed 10,000 across the US alone and has sickened more than 19 million.
While we are monitoring the potential impact of this novel coronavirus, we are not changing our outlook for 2020 for now.
Investment Counsel Inc. is a registered investment adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.