Virology, the Asian Markets, and Contagion Risk

While some consider Iran the nemesis, others consider pandemics as the major thorn…
Bob Mason
Stock market down

The global financial markets have had their share of hits over the years. These have, not just been driven by the likes of Tulipmania, but also virology and “banker syndrome”.

While there have been many hits, some have hurt more than others.

When considering the lack of global reach and an estimated 500m infected, the numbers could have been far worse had the carrier environment been more efficient back in 1918.

From a global financial market perspective, we did not have the coupling and contagion risk seen today. The research did point to a significant increase in poverty rates, however.

In 1918, the size of the global economy was far less than today. More significantly, globalization and the spread of pathogens and viruses today are far more efficient than back in 1918.

While the 1st world war was a horror show, the Spanish Flu pandemic was something else altogether.

So, why should we care today? After all, the flu and the global financial markets are far from correlated, else we would see dips in the winter and rallies in the summer…


It would be correct to assume that the global financial markets have little correlation to the common cold.

That is when we look at historical data and the lack of liquid markets and global contagion risk.

SARS was perhaps the first major viral event that did have a material impact on economics and risk appetite in general.

A prolonged period of secrecy led to a pandemic that delivered close to a 10% fatality rate. This was not just in the farmlands of China, but also Asia’s concrete jungle financial epicenter of HK.

The impact of SARS on the global economy was estimated at between US$30-US$100bn. So damming that the spread was wider than a trader’s worst nightmare…

For China alone, the 2003 outbreak wiped 1% off China’s economy and 0.5% off of Southeast Asia’s GDP. Resonate to how the market reacts to China’s economy slowing by 0.1%…

Let’s not even talk about HK that turned out to be the fall guy for China’s decision to hold off from sharing the dirt.

Such outbreaks that result in sizeable loss of life cause seismic shifts in the global tourism industry in particular.

SARS led to an unforgettable impact on Hong Kong’s economy and tourism, retail and pretty much every consumer-related industry.

Contagion risk then impacted the region. After all, back in 2003, it was HK money that fueled the region.

The lesson learned was for China to release information more swiftly. That was also an alarm bell should China ever decide to deliver viral data more hastily in the future.

This time around, it’s hot potatoes… pandemic risk is far greater than back in 2003 and certainly far greater than back in 1918.

At-risk are airlines, hotels and just about any economy reliant upon consumer spending and tourism in particular.

Unsurprisingly, it’s Asia that sits in the eye of the storm once more and for that very reason, there must be cause for concern.

A lack of transparency and a sudden jump in cases of flue related illnesses should certainly weigh on risk appetite.

The more widespread the pandemic becomes, the less containable and the more debilitating it would be on the global economy.

Coronavirus 2020

For now, we have yet to see any major panic. One does wonder, however, how much influence governments have had on peace and tranquility.

It’s a tough time, with advanced global equity markets sitting record highs and economies continuing to show weakness.

A pandemic or worse would certainly be a major thorn…

With Brexit on the horizon and the Middle East in a state of flux, a viral catalyst would not be unthinkable…

The environment is vastly different from back in 2003

The middle class in China is of far greater size than back in 2003 and air travel from China has also surged. Some economies have seen a greater influx than others, leaving the likes of Thailand and Japan more exposed…

With the hot potato now sitting with the likes of the WHO, time is of the essence.

Locating the source was a key step in finding a cure. Understanding the dynamics of the virus will remain key early on, however.

Expect the markets to be particularly sensitive to any news of person to person transfer. This remains the key and would raise the chances of a pandemic or worse.

How Bad Can it Get?

With Chinese New Year around the corner, human to human transfer remains worse case…

SARS was a lesson learned and one that many would like to never experience again.

By historical standards, it didn’t take long for the Hang Seng to slide back after the Dot-Com Bubble…

Few governments, particularly the HK government, would want to take another hit after last year’s riots…

Back in 2003, let’s not forget that SARS was a mystery illness, cloaked by the Chinese Government to avoid domestic chaos.

This time around, middle-class China, a more open Chinese media and more could spread panic and chaos beyond Asia…

We have already seen cases in Japan and Thailand. Expect more… the very fact that liver and kidney failure are symptoms suggest that more pain lies ahead.

If hygiene and habit is an indication of what lies ahead, some may even bet on an ‘endgame’ outcome.

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