Uncommon truths: Viruses, nuclear disasters and financial markets
Paul Jackson. Global Head of Asset Allocation Research and András Vig. Multi-Asset Strategist
The Coronavirus is spreading but could the cure be worse than the disease? We look at why we tend to overstate the risks of such events and examine the possible economic and financial market consequences.
There have now been around 500 deaths in China from the Novel Coronavirus, in little more than a month. Why do we panic about that, when over the same period it is likely that China has seen around 21,000 road accident deaths (112,000 worldwide) and 7,000-15,000 deaths from seasonal flu (40,000 worldwide)? The answer seems to have something to do with dread and lack of familiarity.
Ebola is reckoned to have depressed the GDP of affected countries by around 10% and the World Bank estimates that a pandemic on the scale of Spanish Flu could reduce global GDP by 5%. We do not believe this coronavirus is in that category and suspect that by the end of the year it will be hard to identify the global economic impact.
As long as the daily number of cases and deaths continues to increase (and spread geographically), we believe there will be room for further panic in financial markets. Given our view that there will be limited full-year economic impact, we would use market weakness to add to the equity position in our model asset allocation.
All data as of 5 February 2020 unless stated otherwise.
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