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In the News

Pandemics ≠ Panics

By:

Cyrus Amini, Esq., CFA

Life’s a Beach...until it isn’t!

While we tend to focus more on asset markets and macroeconomic developments, there are some headlines that merit discussion regardless. One of these that many of you have likely seen in the media lately is the Coronavirus, originating in Wuhan, China.

When first reported, news of this outbreak caused markets to tumble rapidly, with the Chinese equity market particularly under pressure. However, as time has passed, we have learned several lessons from this situation.

  1. At approximately 600 deaths as of this post, the fatality rate of this disease appears to be somewhat in line with SARS which took 800 lives in the early 2000's. According to the CDC this year's seasonal influenza has already claimed the lives of over 12,000 individuals living in the U.S. While the Coronavirus outbreak is a tragedy, it does not seem to be capable of turning into a global contagion, which takes us to our second lesson.
  2. China has learned from the harsh experience of SARS, with a response that was both swift and strategic in nature. The Chinese government effectively cut off an entire region with a city of 15 million inhabitants in a matter of days. That is roughly equivalent to quarantining 5% of the entire US population in less than a week. Furthermore, they were able to build hospitals from scratch in 10 days. This may not be an advertisement for centrally planned economies, but one must wonder if similar feats could be achieved in other countries.
  3. Panic is often temporary. As we have seen with multiple other geopolitical shocks over the last several years, markets tended to absorb negative (or positive) news swiftly. Whether it is political unrest in Iran, a potential pandemic in China, or Britain actually leaving the EU (yes, this did in fact already occur) - the markets clearly don’t feel as vulnerable to geopolitical shocks as they did in the past.

As always, we welcome your comments and questions and look forward to sharing more of our insights with you in the future.