How the Wuhan coronavirus can affect the stock market?
Earlier today, the World Health Organization (WHO) declared the novel coronavirus (2019-nCov) as a public health emergency of international concern. Oddly, the US stock market bounced back despite the news. Does it mean that the coronavirus will have no impact on the stock market? I doubt so.
Fear is setting in
The world has been able to contain potential pandemics in recent history. One might remember MERS, H1N1, Ebola outbreak and SARS, because those are the outbreaks that were covered by mainstream media. This is largely because those viruses reached the USA. Interestingly, there are many other virus outbreaks that were more lethal but did not gain mainstream media attention. You can take a look at the full list here.
So you can see that the actual threat is not really how lethal the virus is, it is more of the fear that the virus can spread and turn into something very detrimental, which will cause the stock market to tank. As of the point which this article was written, the number of infected globally was 9815 and the death toll was 213.
Source
For the past few days, I am starting to see fear setting in. There are many articles that are talking about the impact of the novel coronavirus outbreak on the economy. Here are some examples:
- Virus Poses New Threat to Economy’s Fragile Stabilization
- The Wuhan virus is the last thing China’s economy needs right now
- China virus outbreak poses new threat to fragile global economy
Business activities are slowing down
I am currently working for a company which is headquartered in China. Drastic measures have been put in to control this outbreak. Employees are forced to continue their Lunar New Year holidays until 7th Feb. We are all advised to avoid non-essential business travels. Our clients are also slower to respond and our vendors too. All these business activities are slowing down during this period.
Internally, to err on the safe side, anyone who exhibits symptoms (e.g fever, runny nose and cough) are expected to self-quarantine. Naturally, there will be people taking advantage of this situation to not work. Productivity is bound to take a hit and all these impact will only be reflected in the next quarter's results.
On a macro level, the slowing down of business activities is also going to hurt the GDP. Again this will only be reflected in the next quarter numbers. The longer this coronavirus outbreak stretches on, the deeper the impact is on the economy.
Impact is still underestimated
There are many people who compare this outbreak with SARS. While that is a logical thing to do, I think the mainstream media are still underestimating the impact. Here is a video that point out why certain comparisons with SARS are flawed and it will be wrong to make those assumptions.
The fact now is that this novel coronavirus has already exceeded SARS in terms of the number of infected and is set to spread further. The death rate seems much lower than SARS but it is a flawed comparison as most of the death cases take about a week from diagnosis.
Source
In spite of all these, the US stock market is still quite resilient and the biggest drawdown, from highest to lowest, is just a mere 3%. Has the market truly reflected the fear and possible impact of this virus? My take is that it has not.
Source
During SARS outbreak period, there was a maximum drawdown of about 17% and that was during a time when the market just deflated from a dot-com bubble.
Source
Next, during August 2014, the WHO declared the Western Africa Ebola outbreak as a public health emergency of international concern. The S&P 500 also subsequently saw a 10% drawdown.
Source
Hence, if history can be used as a gauge, the stock market still has plenty of room to correct. However, it is also important to note that there could be other events that influenced the stock market during that time. For instance, the SARS outbreak also coincide with the Iraq war.
Conclusion
I think this virus outbreak will negatively affect the stock market when fear fully sets in. In addition, the Iowa Caucus coming up on 3rd Feb may also move the market. All in all, the confluence of events seem to mean that it will be turbulent times for the stock market in February. Hence, one might want to wait till things clear up before jumping in to invest.
All that being said, I am not a qualified financial advisor and everyone should be doing their own due diligence when it comes to investing his/her own money.
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This will be the straw that broke the camel's back!
The number of consumers and workers in China peaked a few years ago. China, Japan & South Korea are in irreversible demographic decline that will lead to lower demand for everything except new tech and adult diapers (age care related products).
Reserve Bank money printing and low interest policies have papered over this core weakness but events like this will expose the massive over capacity in Chinese economy.
Most likely you're right @apshamilton
Very difficult times ahead of us :/ 2020 will be definetly year to remember.
Cheers, Piotr
The aging population problem in those countries is certainly a huge concern
I heard on the newsreel last night that they have started producing vaccines for the virus, so maybe all will be contained soon. Meanwhile, just have to be careful, and wash your hands more often.
Personal hygiene is very important now. Hope the vaccine news is true, but I understand that it will at least take a month based on optimistic estimation.
Yes, they will need sometime to test them.
Hi @quotes-haven
And who would receive all those vaccines? Entire population of china? It's hard to figure out who needs them since you can be a carrier without showing any symptomps of being a carrier.
Anyway which country did made this announcement?
Cheers
Piotr
Hi @culgin
As a Venezuelan, I must tell you that I agree with @lanzjoseg that we are afraid because viruses like this affect our country and our economy that is badly damaged. Having to overcome an event of these magnitudes in a country that does not have the resources to overcome it is simply a tragedy.
I think that this virus was designed to affect the economy and do a big business with its cure, it doesn't surprise me, it's something that those who have control do (usually we enter into interesting conspiracy theories) like the Bilderberg society, the Illuminati, etc. They make huge profits from all this, and the coronavirus doesn't think it's the exception.
Very interesting article, it caught my attention 👍
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There are many conspiracy theories floating around. It is not up to me to prove/disprove them :)
I just hope this viral outbreak is eventually contained and not spread to more countries
Hi @culgin
This news, to me as a Venezuelan gives me a lot of concern.
Venezuela is not prepared to face a pandemic like the one that is occurring in other countries.
And the worst part is that the Government of Venezuela gives many royalties to the Chinese, here in the southern region of Venezuela many Chinese live in communities of many Chinese inhabitants.
@lanzjoseg my friend, I hope you do not equate Chinese ethnics with the virus. This can easily lead to racism and discrimination. This is something I fear actually. The effects will be quite long-lasting. If we survive this outbreak, many people around the world might view Chinese through a tinted glass for quite some time.
Hi @culgin
No. Definitely I am not of that kind of Perosonas, In Venezuela I never get used to it. Since in Venezuela we are descendants of many nations, when I refer to the Chinese from my perspective I do it only because in some way there is a direct contact with the entrance to our country because there are no security controls to be able to realize who comes with the virus, and in this case the strain comes from China and here the Chinese who arrive do it without any sanitary control, or rather any person of any other nationality arrives in Venezuela and there is no sanitary control.
I wait and I apologize if my words were misunderstood
3 days ago the market(watch) was more optimistic, searching for buying opportunities:
https://www.marketwatch.com/story/5-reasons-coronavirus-fears-are-overblown-and-14-stocks-to-buy-now-2020-01-28?mod=home-page
In my opinion, it will be quite risky to be too optimistic right now. China sealed the Wuhan city on 23rd Jan. The virus incubation period is said to be up to 14 days. I think we will need to wait till mid-Feb to have a clearer picture on how widespread the virus can be.
Already affected Asian stock markets quite badly.
Will eventually affect European amd American markets if not already.
Study past plagues for clues.
Yup. Asian stocks are heavily hit. China stock market is closed for a week and will open on Monday. We shall see what happens then.
Opening tomorrow @culgin?
Yup, opening today. Monday, 3rd Feb.
Very true. We're gonna be hammered @abitcoinskeptic
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So much has changed in 10 days...even the official numbers from BNO News as of today are "currently 40,614 confirmed cases worldwide, including 910 fatalities."
But the numbers are only going up based on the number of test kits given to each hospital daily...
Shipping from China has been shutting down, which will possibly include the majority of antibiotics used in the US, as well as many other life saving medicines.
Not sure how that will play out in the stocks though.
So far I have been wrong, stocks are making new highs despite the threat of this viral outbreak 😅
Perhaps I have underestimated how far the central banks can go to prevent a crash in the stock market
Haha, yeah...I've been watching them climb, they must have those printers sMokin' :)
True... why the US Stock market is not falling when so many stones are thrown at it - like not much economic activity, GDP , its over valuation. It's a matter of time, the US stock market should fall I am sure!!!
Indeed
Stock market performance is a direct reflection of investor confidence.
Yes, that is right