Like with Sars in 2003, the Corona virus started to affect the financial market significantly in the last week. The Corona virus has grown rapidly over the last week. On the 24th of January there were 941 reported cases, currently there are over 11k people infected. And according to scientific models, the amount of people carrying the virus might already be above 75k. Due to the incubation period of 14 days and people that are not being reported/investigated yet, the number might be much higher than the official reports which say just over 11k. See below that the Corona virus is so far mainly sticking to the mainland of China. Let’s hope it does not spread further in large numbers.
How the outbreak compares with SARS
During the SARS outbreak, 774 people died. Most of them died in mainland China and Hongkong. Currently the spreading of Corona goes much faster than the speed of spreading of SARS. In the end, ‘only’ 8098 people were infected with SARS. Corona will go far higher than that. The good news is that the mortality rate of SARS might be much higher than we will see with Corona. The death rate with SARS was nearly 10%. So far the Corona virus gets to a death rate of 2.1%. But one should not forget that people who are currently infected might still die because of the virus. The death rate of Corona will because of that creep up further.
Two main questions for the upcoming weeks are to see how quickly the virus keeps spreading and what death rate is represented by the virus. Currently there is a lot of uncertainty around this.
Why are the financial markets falling?
The virus has started impacting countries, companies and with that the economy and the financial markets. Lots of countries and companies have taken action. For example, Lufthansa has cancelled all flights to and from China till at least the 9th of February. Another example is Starbucks, Ikea and Apple closing stores in China. Trade with and within China will be harmed on the short term. This has an effect on companies that do business with or in China and will dampen their revenuues and profits. This is spooking investors and causes the market to fall. The market does not like uncertainty and we currently see a correction happening. Stock markets are always forward looking, so when at some points it seems that the tide is turning, the markets will recover rather quickly. Reasons for that to happen could be that the speed of spreading the virus goes down quickly, some kind of vaccine is ready to be used, the majority of the virus stays in China, et cetera.
With SARS we saw the same. The market panicked and the S&P went down around 8% within weeks/months to recover heavily after uncertainty of the virus decreased and it seemed that SARS was getting under control. The S&P traded just after the SARS virus higher than it was trading before. Most likely something like that will happen again. In case the Corona virus worsens the upcoming weeks, a retreat in stock markets of up to 5%-7.5% seems possible. If the Corona virus is being dealt with, the stock market will probably recover the complete downtick.
The upcoming week volatility will stay high. China’s stock market will open again, and it will be very volatile on it’s first day. Probably opening around 8-10% down. The focus for this week is to see whether authorities have been able to keep the disease mostly in China or not. Do we get large outbreaks outside of China?
To be continued.