In spring of 2003, I was invited to visit John Martin, a close friend of mine and a big-time currency trader. John and his family lived in Singapore, and the world was on the tail-end of the SARS (severe and acute respiratory syndrome) breakout.
My roundtrip plane ticket only cost about $700 and the wide-body jet I was flying in to Hong Kong was less than a quarter full. The SARS scare had hit the airline and travel industries hard.
Fast forward to October of 2014. The Ebola crisis that caused 15 times more deaths than SARS broke the containment of west Africa and the U.S. stock market dropped 7.5% in less than five days. As of Tuesday morning, the spread of the coronavirus has claimed 106 lives.
And while the response to contain the virus has been quicker than in past instances, many are concerned about the market impact of the infectious disease. History tells us that we likely won’t see a significant impact outside of some short-term headline risk.
This outbreak has a Reality Gap much like past ones – driven more by the media’s need for viewers and readers than by the reality of the situation.
It’s an important story to be sure, and heartbreaking.
When people in Wuhan, a city in central China, first started getting sick last December, the Chinese government underplayed it.
They said there were no signs the disease had been transmitted from one human to another, and they quickly ruled out that this illness could be caused by the virus behind the 2003 SARS outbreak.
That deadly SARS virus spread to more than 8,000 people, killed 774, and sent stocks tumbling across the region.
Traders still remember that, so China’s reassurance and the limited scope of the outbreak kept them calm. But last week, the news did jar the markets. As recently as ten days ago, China was reporting just 62 cases and two deaths. But reports were already coming out about possible cases in Thailand, South Korea, Japan, and the Philippines.
A day later, the news was starting to add up. China announced that in Wuhan alone, there were 168 cases and four deaths.
Not only had the number of cases at the source of the outbreak almost tripled, but at least 14 of the infected were medical workers who had caught the disease from a patient.
In other words, the virus, now confirmed to be a relative of the SARS virus, had spread from person to person. Cases have now been officially reported in the three major business centers of Beijing, Shanghai, and Shenzhen.
Markets across Asia tanked as this news hit last Monday evening just after 8 p.m. EST. And here in America, traders followed suit with quick 130-point drop in the Dow in afterhours futures trading. By the end of the U.S. Trading day last Tuesday, the first air passenger with the virus had hit U.S. soil and I had been on Fox Business Network and Bloomberg radio answering questions about the market impact of the virus. The China large cap index was down -4.5%.
As the week progressed, the outbreak grew in size. As I’m writing this, the number of cases worldwide has risen, according to the BBC, to 4,515 confirmed cases and another 5,794 suspected. Of those, there are five confirmed cases in America so far. Heartbreakingly, there have been 106 deaths, most in China’s Wuhan province, where the outbreak began.
With wall-to-wall coverage in the papers and news channels, and markets dropping as new cases appear, it’s hard not to be concerned.
The truth of the matter is that the market’s modest response is telling us important information. This outbreak is worrying and unfortunate, to be sure.
But a horrific pandemic is nowhere in sight.