bird flu: investment implications from the SARS experience


Three times in the past decade we’ve had global flu pandemic scares from coronaviruses:

–SARS in 2002-03

–H5N1 in 2008, and

–H7N9 currently.

I don’t know enough to say any more than that in each case the disease is carried by birds or animals and transmitted to humans through contact,  Contact can come either from physical proximity to live animals or from eating undercooked meat.

The truly dangerous development would be a virus mutation that allowed the disease to be transmitted from an infected human to other humans.  In the case of H7N9, this possibility hasn’t been ruled out, but the evidence for or against appears to be unclear.


The S&P 500 dropped by about 10% once the threat of SARS became apparent;  the Hang Send fell by closer to 20%.  The emergence of the following two viruses have been greeted mostly with yawns.  Still, I think it’s worth looking back at the SARS episode to remember what happened then–just in case H7N9 takes a negative turn.


One key difference between SARS and the others is that the government in China, where all these flu strains have originated, initially tried to cover up the SARS outbreak.  That allowed the disease to spread for months before any systematic action was taken to combat it.  And even then China didn’t want to release details to the international medical community about how bad SARS had become.  And it rebuffed foreign offers of medical cooperation and assistance.

As a result, before the spread of the disease was controlled through quarantine, 8,273 cases of SARS were reported, the vast majority in China and Hong Kong.  About 10% of those infected died.

Beijing’s attitude is now completely different.  China has already supplied virus samples to world medical agencies so they can begin work on possible vaccines.

what a repeat would mean for stocks

Economically, what would a repeat of the SARS experience look like?  Here’s what I think:

1.  World GDP growth would slow down.  Factories in the affected areas would cease production, with employees possibly quarantined.  As in the case of the recent floods in Thailand, we would doubtless find that shuttered manufacturers made some low value-added, but nevertheless key, industrial components that would force work to be curtailed all through the supply chain.

2.  International trade would decrease markedly.  Export destinations would be reluctant to accept shipments of goods for fear of contamination.  transport hubs wouldn’t want to handle cargoes.

3.  Global travel would come to a screeching halt.  Travelers would fear being infected while on aircraft.  For the same reason, no one would want to receive business visitors, especially from affected areas.  Less obvious, though most important, travelers would fear being quarantined–possibly for months–at a foreign destination and not allowed to return home.  That could reduce their work effectiveness, as well as potentially forcing them to remain in an area where medical care might be sub-par.

stock market effects

In the SARS case, stocks stayed depressed for around three months.  They began to rebound once signs emerged that quarantine was effective and the virus was coming under control.

Back then, stocks in Hong Kong were hurt across the board (in today’s world, the biggest losers would likely be the casinos in Macau). Industries badly hit around the world included, as you might expect, hotels, ports, airlines and all businesses in international tourist/business destinations.

Pharmaceutical companies, especially those with related expertise, did well.

Were H5N9 to mutate into a form that’s more dangerous than it is now, I’d expect the same general pattern to recur.

Let’s hope it doesn’t.

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