How Will Coronavirus Impact Your Portfolio?

February 07, 2020

 

It's been an interesting week. We've got the Kansas City Chiefs winning the Super Bowl. I don't know what to say about the debacle in Iowa, but really what's on everyone's mind is how will a Coronavirus affect stock markets and your investment portfolio? Now there are precedents, so we can talk about this. The SARS virus, there's Avian Flu and there's Ebola. What are the threats? Why would markets be so upset? Well, the biggest threat we're concerned about is these travel bans - especially in China. One of the things that's been learned with Ebola in Africa is the stricter the travel ban, the harder people will work to actually violate it. The other threat is what does it do to economic consumption and global GDP markets? We do know from history that travel bans rarely work.

 

We also know from history that this type of event tends not to be good for the travel industry. So just how bad is this virus? Those cases that initially reported tend to be the worst cases. There are significant numbers of asymptomatic cases. The incubation period is some seven to 14 days. For many people, this looks like the flu and many people won't report it thinking they just have the flu. So 2% of those cases reported have left a fatality. It's probably closer to 1% or even less than that. The vast majority apparently tend to be the elderly over 65, diabetic, etc. This really does look and feel like a bad flu and nothing like the Spanish Flu that killed 10% of the 500 million who caught it back before World War One. In fact, the Spanish Flu killed more people than the war did. Most people will survive this.

 

The virus is very robust. It will survive on the surface for up to four days. So what can you do to protect yourself? While everyone's thinking masks, actually washing your hands on a regular basis is the single best thing you can do to protect against the virus. There are some good things that we've never seen: such high quality global communication and coordination for any previous virus or pandemic. China, after just a couple of days of hesitation, really behaved well. What is the impact? This is going to be hard on the travel industry and the airlines. Every single pandemic before it resulted in a significant regional drop. It does look like this pandemic is going to spread outside of China, and if it does, that will be really, really bad for the airlines. But given the demographic nature of the impact and the low percentage of people that will probably have bad outcomes, it's very unlikely this will have a massive impact on the productive capability of the world. Previous pandemics, once the math has been calculated by the markets - once the data is processed - always resulted in a market recovery after an initial shock. So though this will be unpleasant for the sickest, harmful for the travel agent industry, it's going to be survival both for most people and for financial markets. We wish you the best of investment success and wash your hands regularly.

 

Sources:

 

Wall Street Journal - What We Know About the Wuhan Virus

 

Bloomberg News - China Virus Cases May Be Undercounted

 

Morningstar - Travel and Tourism Companies Likely To Be Hardest Hit

 

Economist - Airlines Will Be Hit Hard By Coronavirus

 

Marketwatch - Coronavirus Is Less Deadly Than SARS

 

 

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