more on the new coronavirus

SARS

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 ill

–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.

 

 

the new coronavirus

A little more than 17 years ago, the coronavirus SARS (Severe Acute Respiratory Syndrome) surfaced in China.  Despite occurring at what proved to be the onset of a new bull stock market, SARS cast a months-long pall over world stock exchanges, particularly those in Asia and notably Hong Kong.

Two key reasons:  this was the first coronavirus many investors (myself included) had seen, so it was especially scary;  rather than quarantine infected individuals, local authorities in China decided to cover up the presence of the disease, so SARS had a chance to spread unchecked for several months.

 

The coronavirus MERS (Middle East Respiratory Syndrome) only captured world attention for a few days then it emerged in 2012.  Overall economic/stock market conditions were favorable.  Authorities moved quickly to contain its spread.  And investors had already seen how SARS played out.

 

The new coronavirus, which doesn’t have a snappy acronym yet, comes from China and is a relative of SARS.  One might expect that its impact on stock markets will be more like that of MERS than SARS.  Two caveats:  it is hitting China just as the annual New Year travel/spending/celebrating holiday is beginning; and markets have been rising for years.  Economic activity is healthy but not awesome, and is beginning to slow in the US.  Ex Hong Kong and mainland Chinese bourses and travel-related stocks, however, the new virus will be the possible trigger for a selloff, in my view, rather than a cause.

 

SARS and ebola

Two preliminaries:

–Alan Kaplan, a reader, attached an AP article to yesterday’s post that says that 16 staff members of Doctors Without Borders have been infected with ebola and nine have died.  This contradicts information I got from Bloomberg on Monday that none had been infected.  A health expert was using this “fact” to buttress his case that although the protective protocols for health workers were very difficult to carry out they were effective.

Thanks, Alan.

–a second nurse in Dallas who had been caring for ebola victim Thomas Duncan has been diagnosed with the disease.  Reports I’ve heard this morning suggest the hospital was woefully unprepared and that few safety protocols were in place while Mr. Duncan was being treated.

SARS…

This is my mainly subjective, investment-oriented, account of the SARS period.

–SARS emerged in Guangdong province in southeast China sometime in 2002.

–The disease is spread by coming into contact with respiratory droplets from coughs or sneezes of someone infected.  SARS can also be contracted by touching an object or surface where droplets have landed and then touching the mouth, nose or eyes.

–The World Health Organization says that 8098 people worldwide contracted SARS during the 2002-03 epidemic, of whom 774 died.  In the early days of SARS, however, and for a period of at least several months, Chinese officials suppressed information about the disease.  So it’s not clear how accurate these figures are.  .

–Treatment, as I recall from reports at that time, is long and painful.  Recovery may be far from complete.

–two factors contained the spread of the disease outside China:  at that time is was not as easy as it is today to get official permission to leave the country; and most exit routes led through Hong Kong.  So Hong Kong acted as a choke point for screening and potential quarantine.

–within China, once Beijing began to take preventative measures to contain SARS, factories were quarantined and closed for weeks at a time.  This not only affected the production of Chinese goods, but also foreign production of end products that used Chinese components.

–for a period, port workers in Hong Kong and elsewhere refused to handle shipments of goods from China, reasoning they risked contracting SARS from touching surfaces where infected persons might have coughed or sneezed.

–Travel to Hong Kong dropped sharply.  Business travel from Hong Kong did as well, since clients/colleagues were not eager to schedule meetings.

–Investors closely monitored reports of new cases in Hong Kong, looking for deceleration of the rate at which the disease was spreading.  The time of maximum concern lasted from the initial reports from China in November 2002 until June 2003.

–the S&P 500 dropped by about 10% from mid-November 2002 through early March 2003.  It’s hard to know how much of this decline was due to SARS, since world markets were still working through the aftermath of the implosion of the Internet bubble in 2000.  Markets bottomed in March 2003;  economic revival propelled them sharply higher from that point.

…vs. ebola

–ebola appears to be harder to contract than SARS, but the fatality rate is much higher

–colonial-era ties between Africa and the EU mean there are more routes an infected person might take to other areas of the world

–Africa is not yet the manufacturing powerhouse that China was in 2002.  So the indirect effects of quarantine on the rest of the world will be potentially lower

–as was the case with SARS, the biggest potential stock market losers will likely be travel, tourism and entertainment related.  I think Europe is the area outside Africa most likely to be negatively affected.

–I’d think that, by analogy with SARS, it will take six months of global government effort to contain the outbreak.  If so, we’re still in early days of concern about the disease.