Coronavirus and its Effects on the Market

The 2019-nCoV corona virus has killed in excess of 213 people and infected nearly 10,000 (as of 31/01/2020), mainly centred in China but around 100 cases have been confirmed globally, outside China. Coronavirus is a type of severe acute respiratory syndrome and has killed 2-3% of patients infected so far. For comparison, seasonal flu has a mortality rate of <0.1% but infects so many people each year that around 400,000 deaths a year globally are attributed to it. However, experts have warned that fatality rates of Coronavirus are hard to estimate currently as it is the early stages of the outbreak and it is impossible to predict how the virus will mutate as it passes between people.

Despite rapid and stringent actions taken by Chinese authorities to try and contain the spread the new nCoV virus is currently spreading faster than SARS (Severe Acute Respiratory Syndrome), an earlier type of coronavirus that spread about 17 years ago in China and infected 8,000 people over 8 months. The numbers of confirmed cases in China of the current outbreak has risen to greater than 9,000 since it first made the news over the last month. Cases are already being noted outside China, notably 2 most recently announced are being treated at Newcastle Hospital

The sudden outbreak of the virus has obviously had significant impacts on the economy in China, with Chinese Markets down by 3% (in the last 3 days) and is also potentially going to have a sizeable impact on the global economy. According to Société Générale the virus could prompt a 10% correction in global equities which could wipe $5 trillion off the market capitalisation of the FTSE 100 index.

Among some of the biggest drops in stock prices were those of airlines. The shares were severely hit on Monday as fears grew about the rapid spread of the virus, affecting people’s willingness to travel. Air France stock dropped by 6%, whilst BA stocks fared similarly, falling by 5.5%. Even airlines with no direct flights to China came under pressure from fears of a global drop in passengers, with EasyJet slipping by 5% and Ryanair down 3%. The Automobile market has also taken a hit, with international Carmakers such as Nissan, Honda and Renault pulling foreign staff from plants across China. The 40 Chinese Cities that have more than 10 confirmed cases account for 40% of China car market production.

Oil prices also fell sharply on Monday. Brent Crude, the international benchmark, fell by 3% to $58.89 a barrel. This is partly due to the current economic uncertainty caused by the virus, but also because of the current lack of work productivity in China. China is a massive global consumer of oil, thus, with their almost complete shutdown of work, they aren’t consuming as much as they usually do, leading to a surplus of oil in the market, further driving the global prices down.

The race to halt the highly infectious disease is now on course, with pharmaceutical firms jumping to find a vaccination. Shares in Inovio Pharmaceuticals, Moderna and Novavax have surged, with Inovio stocks gaining as much as 55% and Novavax as much as 22% since Thursday. Officials from the National Institutes of Health (NIH) in the US has said that trials for the vaccine could be ready in as little as 3 months, claiming that experts have learned from the SARS outbreak in 2003 where the vaccine took 20 months. However, even if the vaccine is ready in 3 months, unless some additional actions are taken to fast track the clinical trials and acceptance procedures it could take many more months of testing and studying before it is ready for global release.

With the number of cases and the spread of countries affected increasing every day, it certainly is worrying times not only for the financial markets but for world health, with the WHO recently confirming it as a global crisis. However, perspective is important, past viral episodes have been able to be contained and haven’t had a long-lasting impact on economic activity. Previous cases of global health crises suggest that there would be a fairly rapid economic recovery once the number of cases has peaked. It is clearly very difficult for investors to predict which direction this virus might take over the next few weeks and therefore until there are signs the virus has been contained, equities will continue to look precarious.

 

By Hermione Scott

Sector Leader: Nicolas Bouchez

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