Weekly: Pandemic alert

This week’s market developments were typical of a budding pandemic scare.
Taimur Baig, Radhika Rao24 Jan 2020
  • There is growing evidence that the coronavirus infection has spread
  • Widespread fallout would undermine the Chinese and regional economic cycle
  • Pandemics cost a lot—loss of lives, hurts sentiments, GDP, and markets
  • Asia remembers SARS all too vividly and is not ready to allow repeat
Photo credit: AFP Photo

Latest coronavirus infection: Lessons from past pandemics

Spike in sales of masks and gloves, nervousness in equity markets, spate of travel cancellations and restrictions, rally in G3 bonds, softening of commodity prices—this week’s market developments were typical of a budding pandemic scare. The epicentre of Coronavirus contagion is Wuhan, a city of 11 million in central China. While the Chinese authorities have moved in expeditiously to quarantine the areas from where the virus began to spread, there is growing evidence that the disease has spread to some places around China and overseas. Unfortunately, long before train and airline travel out of Wuhan was suspended, many students and migrant workers had left town for the Lunar New Year holidays.

Widespread fallout would undermine the Chinese and regional economic cycle just as it was beginning to show signs of stabilisation around improving external demand. Equally crucial would be the dent to confidence in the Chinese public health system, as it could reveal insufficient investment in health safety and sanitation by some city governments.

We will hope that the spread of the virus will be limited with the containment actions that are being taken by healthcare professionals in the region. But we should be open to the possibility that things will get worse before they get better. The cost of the recent pandemic episodes has been considerable, as the following analysis will illustrate.

Let’s begin with SARS. A viral respiratory illness caused by a coronavirus, it was first reported in Asia in February 2003. Over the next few months, the illness spread to more than two dozen countries in North America, South America, Europe, and Asia before the global outbreak was contained. According to the World Health Organization, a total of 8098 people worldwide became sick with SARS during the 2003 outbreak. Of these, 774 died, largely in Mainland China and Hong Kong.

Beyond the tragic loss of human lives, the outbreak caused a sharp decline in travel, tourism, and commerce in Mainland China, Hong Kong, Singapore, and Taiwan. As far as the financial market response, both Hong Kong and Singapore saw about 100bps decline in bond yields and 15% decline in equity market valuation. The loss of GDP was as high as 2.5% for Hong Kong and around 0.5% for Singapore.

Other notable pandemics in recent years have been H1N1 influenza in North America, Africa, and South-East Asia (2009) and viral fever Ebola in West Africa (2014-16). Just like SARS, by the time the outbreaks were contained, considerable resources and lives were lost.

The key lesson from these episodes is that economies with advanced healthcare infrastructure and a well-rehearsed policy response system can absorb the shock, contain the damage, and bounce back quickly. Transparent and expeditious disclosures about the fallout and risks could very well dent public sentiments, but are essential for awareness to spread.

Lunar New Year festivities in the region will be affected by the ongoing developments and the tourism and sales data for January would not be particularly strong as a result. It is however too early to start guessing major downsides to economic and financial indicators. While we wait for successful containment, this episode will nonetheless be a reminder that pandemics are real and not that rare. Exercising vigilance is essential.

To read the full report, click here to Download the PDF.

Taimur Baig, Ph.D.

Chief Economist - G3 & Asia

Radhika Rao

Economist – India, Thailand & Eurozone


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