Overview of Coronavirus Impact
For the past few days, investors have been concerned about China’s Coronavirus outbreak. The latest official statistics show that there are 2854 confirmed cases, 5794 suspected cases, and 82 death cases. People tend to relate the new coronavirus to SARS, which occurred in 2003 and infected more than 8,000 people globally. While epidemics can easily cause anxiety among investors, the actual impact often is very limited and short-lived. Also, after comparing the current virus to SARS, we believe that the current scenario is better than the case we had 17 years before.
SARS was not as Horrible as One Would Imagine?
First of all, we want to show some facts about what actually happened with SARS. The map below shows the statistics for SARS in 2003. Notice that the majority of infected cases occurred in Asia, where population density is higher. Meanwhile, the USA, where population density is relatively low, only confirmed 27 cases with zero death.
The chart below shows the trend of new cases for SARS. Although the first SARS case occurred in Dec 2002, SARS was not officially identified until mid-February 2003 and was not paid enough attention to until mid-march 2003. The chart indicates that the number of new cases diminished soon after measures were taken to prevent further spreading.
Source: CDC 2003.
What are the similarities?
The image below from AFP News Agency well explains the similarities between SARS and novel coronavirus. The current epidemic is similar to the 2003 SARS in terms of the cause, symptoms, and transmission. The cause of the novel coronavirus is similar to "SARS," which is suspected to be from wild animals. Common symptoms are also fever, cough, and so on (refer to the image). And most importantly, this new coronavirus can also be passed from person to person with immunocompromised elderly being the vulnerable populations.
Why better this time?
There are many positive differences in the outbreak. First of all, the mortality rate is lower than that of SARS. According to the data released so far, the mortality rate from pneumonia caused by the infection with this emerging coronavirus is below 3%, which is lower than the mortality rate of about 10% caused by SARS in 2003. Secondly, the government's response measures are faster and more appropriate. With the experience of the last SARS outbreak, the measures and methods the government has shown in responding to the epidemic are more mature and effective than the last time. Thirdly, more transparency is provided to the public. Data relevant to the development status of the epidemic has been updated more timely and transparently. The correct self-protection and treatment measures have been informed to the general public more effectively.
Impacts of the Epidemics on the Market
The graphs below show the performance of US and Global stock markets 1, 3, 6, and 12-months after the major epidemics since 1980. The short term impact of epidemics varies with market declining after some epidemics (i.e., MERS and Measles/Rubeola) while rising after others (i.e., Dengue Fever, Swine flu, Cholera). Over the long term, however, the impact of these epidemics is limited, as evident by 13.36% and 11.63% rise in the U.S. and Global stocks on average 12-month after epidemics. Note that in the SARS scenario, the U.S. market rose 21%, and the global market rose 27% in the following 12-month period.
Taken together, we believe that the negative impact of the new epidemic on the market and society will be limited and short-lived.
Disclosure: This information is for informational purposes only. It is not intended to be a substitute for professional medical advice, diagnosis, or treatment. Always seek the advice of your physician or other qualified health providers with any questions you may have regarding a medical condition. Never disregard professional medical advice or delay in seeking it because of something you have read on this here. All investment performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal.
Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Cornerstone Wealth Management, a registered investment advisor and separate entity from LPL Financial.