more on the new coronavirus


SARS emerged in China in November 2002.  Local authorities, later removed from office in disgrace, initially failed to sound an alarm about the new disease, apparently thinking reporting it would reflect badly on them and hoping it would just go away if ignored.

The world first became aware of SARS as a public health threat in February 2003.  The disease was declared under control in July 2003.  By that time there had been 8000+ reported cases and about 800 deaths.  The overwhelming majority of the fatalities were in China.  The elderly and the very young were the age groups hardest hit.

the new virus

As of yesterday, there had been 2700+ cases of the new coronavirus reported and 80+ deaths.

There are four differences I see between the SARS epidemic and this year’s outbreak:

–faster reporting and more aggressive quarantining today (the disease is passed through contact with an infected person’s bodily fluids.  There’s no medicine that works against it, so isolating victims is the only “cure”)

–symptoms emerge on average about ten days after infection, pretty much the same as with SARS.   But unlike the case with SARS, where carriers only became infectious after they showed symptoms, carriers of the new virus appear to be infectious from day one, long before they become visibly itt

–China is a much larger part of the world economy today than it was back then.  While the US has grown by 80% (using conventional GDP) since 2003, China is 12x the size it was then.  So the slowdown in global economic activity that will result from quarantine measures in China today will be greater than it was for SARS.  If SARS is a good indicator–and it’s the only one we have, so it is in a sense our best guide–the current outbreak will be well past the worst by mid-year

–SARS happened just as the world was beginning to recover from the recession caused by the internet bubble collapse of early 2000.  The new virus comes during year 11 of recovery from the downturn caused by the near-collapse of the US banking system from losses that piled up during years of wildly speculative lending and securities trading.  In other words, SARS happened when profits were beginning to boom and stocks really wanted to go up; in contrast, this virus is happening when profits are plateauing and stocks want to go sideways mostly because interest rates are crazy low.

investment thoughts

During the SARS outbreak business travel came to a screeching halt because people feared becoming sick/being quarantined in a foreign country. If it’s correct that the new virus can be passed on even before the carrier shows symptoms, the risk in using public transport is substantially greater.  So too the possibility that one’s home country will temporarily bar returnees from virus-infected areas.

Securities markets in China are currently closed for the New Year holiday.  It isn’t clear that they will reopen on schedule.  In the meantime, China-related selling pressure will likely be redirected to markets like New York.  Alibaba (BABA) shares (which I hold), for example, are down about 6% in pre-market trading.  At some point, assuming as I do that the SARS analogy will be a good indicator, there’ll be a buying opportunity.  For me, it’s not today, although if I weren’t a BABA holder I’d probably buy a little.

It will be interesting to see how AI handles trading today.



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.