Robert Horrocks, PhD, Chief Investment Officer
Just as China's markets have emerged from U.S.-China trade war concerns, they have been hit with worries over a new virus, the Wuhan Coronavirus. While we do not underestimate the potential severity of the outbreak, and it is possible that the numbers of cases increase in the near term, we are encouraged by the response and transparency shown by the Chinese authorities.
There is also a precedent for what is going on. I was living in Shanghai during the SARS (severe acute respiratory syndrome) outbreak that was responsible over 8,000 people contracting the virus and causing 774 deaths worldwide. The impact of SARS on China's GDP is hard to find. If you look for the impact on the stock markets, it was brief. Over the course of the outbreak, markets actually rose. So why do we pay so much attention to these things?
First, what is the likely duration? Well, it is probably likely to peak, in terms of cases, in March or April. As I understand it, the more virulent the virus, the quicker it burns out. That is why the comparatively less aggressive common influenza causes much more damage. In past years, the Center for Disease Control has estimated flu deaths in the U.S. alone at up to 80,000 in severe seasons.
Second, the cost to China's GDP? Some workers will be out sick days and some will succumb to the disease. However, as was the case with SARS, beyond the effect on a quarter or two of earnings for some businesses, the overall effects will be hard, if not impossible, to spot in the data.
Third, the impact on sentiment? Here it will be at its greatest. Why? Because U.S. newspapers always seem to overreact to any news out of China, good or bad. Also, the Chinese reaction itself can be extreme—add humans' natural fear of disease and the fact that China has a weaker health system than the U.S., and you can see why the local population reacts with great fear. You can see why the government takes logical but perhaps heavy-handed steps to control the outbreak. All of that plays to headlines and the impact on share prices is consequently exaggerated.
So, what to do? I can only say that my experience, when I lived through SARS first hand, tells me to eat well, stay active, and importantly, stay calm.