The coronavirus outbreak that started in China could certainly be considered an unexpected market shock, one which looks to remain a concern for a while longer. Franklin Templeton Multi-Asset Solutions’ Ed Perks and Gene Podkaminer offer an update on the latest developments in the spread of the coronavirus, its implications for global markets, and outline how they approach unexpected shocks like this one and others.

Familiarity makes us feel safe, but it is a bias known as habituation. In contrast a new threat or high-profile event will grab more attention than they necessarily deserve. A single catastrophic plane crash is always more newsworthy than a hundred separate automobile crashes.

Similarly, seasonal flu is a familiar threat to our health, that we live with and accept as an annual risk, but which kills tens of thousands in the United States every year. The outbreak of a new coronavirus strain (Novel Coronavirus or nCov for short) is clearly an exotic threat that is difficult to analyze, and one that we are not familiar with. But, broadly speaking, deaths from epidemics are declining, even if news coverage often leaves out this important fact.

Additionally, the world has seen rapid developments in technology since SARS (severe acute respiratory syndrome) first struck in late 2002. It is now possible to identify a virus from its DNA in a matter of hours. Previously, such sequencing would have taken weeks. Such technological developments speed the identification of cases and the development of effective treatments.

Despite this context, the outbreak of nCov is creating havoc in China and heightened concern across the globe. The World Health Organization (WHO) has officially declared it a global health emergency. As of February 3, 2020, the death toll has risen to well over 300 and there are more global cases officially reported than during the SARS epidemic. The situation remains troubling and fluid.