In 2003, the Severe Acute Respiratory Syndrome (SARS) coronavirus caused a substantial economic demand shock in East Asia particularly in Hong Kong, Singapore and China. The economic disruption caused much turmoil to the local economies of the affected countries where the outbreak occurred. Tourism industry then was hard hit by the nose-dive in tourists arrival and the hospitality industry was badly impacted. Other industries such as retail also suffered when people stayed indoors in order to avoid catching the virus. According to official estimates from the Economic Survey of Singapore, Third Quarter 2003, the local service industries such as hotels, restaurants and air transport shrank by 10% to 30% in the 2nd quarter of 2003.
The SGX was in the red today with heavy selling by worried investors. Will the current Wuhan coronavirus also lead to the same severe economic disruption that we have seen in 2003? Will stock prices begin to plummet further to factor in the new threat of an impending economic recession due to disruption in economic activities from the rapid spread of the virus?
1. China has confirmed human to human transmission of the new Wuhan coronavirus
As of 21st January 2020, China has confirmed that 15 medical workers (with 1 in critical condition) are stricken down by the Wuhan pneumonia and that the virus can spread from human to human. Hong Kong, South Korea and Thailand also confirmed cases of the Wuhan pneumonia. The outbreak timing could not have been much worst as it occurred at the eve of the Lunar New Year period where hundreds of millions of Chinese move around the entire country during this festive season. I expect the pneumonia cases to continue to spike daily as the virus spread to different parts of China and also to other countries. The Philippines is currently investigating a suspected case of Wuhan coronavirus.
2. New Wuhan coronavirus is not as deadly as SARS or MERS (Middle East Respiratory Syndrome)
The new Wuhan coronavirus appeared to be less virulent than SARS or MERS. While there have been 4 reported deaths, most of the 200 people who caught it are being treated and in stable conditions. Death rate are thus only 2% relative to the 15% fatality rate for SARS and 35% for MERS.
3. New Wuhan coronavirus seems to have limited transmission capability
Apparently, the new virus does not transmit as easily as SARS albeit China confirming that human to human spread has happened. However, researchers are currently still in the midst of studying the new coronavirus to determine how does it spread exactly and whether the transmission is sustained.
4. New vaccine are being developed- A record timing compared to SARS time in completion of sequencing of genome of the virus
Different teams of scientists in China and USA are already at work on developing a vaccine for this new strain of coronavirus. This is made possible as Chinese scientists completed the mapping and sequencing of the genomes of the new virus within a month. With SARS, it took almost 1 whole year before scientists completed the genome mapping.
Parting Thoughts: Will Wuhan coronavirus lead to economic recession and stock market crash?
Based on the above developments as well as the better transparency offered by China this time round, I think that the current spread of this new threat can be contained effectively globally. There may be some short term market panic but overall, I believe that there should not be any adverse long term effect. However, the marco-economic situation may worsen immediately if the Wuhan coronavirus begin to mutate and evolve into something deadlier than SARS or MERS. I have been through the SARS crisis and have difficulties securing a job in the aftermath of the economic slowdown hence I know how virulent the sense of panic and doom can spread if the virus caused many fatalities or start to transmit rapidly between humans to humans.
For now, keeping my fingers crossed and will monitor the development of this new threat but will not be making any significant adjustment to my investment portfolio.