Chief economist update: Equity markets struck by coronavirus

"I've got chills,
They're multiplying..."

Wall Street is down ... with the coronavirus flu! The Dow declined by 0.5%, the S&P 500 by 0.3%, the Nasdaq by 0.02%, and the Russell 2000 by 0.8 after the US Center for Disease Control and Prevention confirmed the first case of the coronavirus in Washington State.

This followed the share market declines in the Asia Pacific time zone -- the MSCI Asia Pacific index (ex-Japan) dropped by 1.0%, the Nikkei-225 fell by 0.8%, the Shanghai composite gave up 1.5% and the Hang Seng index plunged by 2.0% -- in contagion fears.

According to The Guardian: "China confirmed 291 cases of infected patients in an update on Tuesday. There have also been reports of cases in Thailand, South Korea and Japan. Philippine health authorities said on Tuesday that they were investigating the case of a five-year old Chinese boy with a travel history to Wuhan after he showed flu-like symptoms before arriving in the country."

So far so not as scary as the scare-mongering we've witnessed during the SARS epidemic of 2003 or that of the swine flu of 2009.

According to Wikipedia, a total of 17 countries were affected by SARS - severe acute respiratory syndrome - with a total of 8273 cases reported between November 2002 and July 2003 and leaving 775 people dead.

This sent the S&P 500 down by 13.7% from a high of 931.7 points in 2003 to 804.2 points. Looking at this history, investors have every reason to be afraid, very afraid. Then again, the same history shows that by the end of 2003, the S&P 500 index has surged by 38.3% from this low point.

Perhaps, 'twas because the GFC has already done its damage to equity markets back in 2008/09, still the outbreak of the swine flu in April 2009 prompted horror headlines. For reference, the S&P 500 finished that year with a 23.5% gain.

That time, revived old archives citing a 2006 paper titled Global Macroeconomic Consequences of Pandemic Influenza where, based on economic modeling, 'the most serious "ultra" scenario would cost 142.2 million lives around the world and reduce growth by $US4.4 trillion.

How could approximately 150 dead in Mexico - there were no reported deaths in the other infected countries - translate into 142.2 million? Even SARS (severe acute respiratory syndrome) of the early 2000s stopped after 775 deaths?

Reuters too. It pointed to a 2008 study conducted by the IMF that predicted that an influenza pandemic could cost US$3 trillion and a 5 per cent fall in world output.

But this one I found on the internet - reportedly a comment made by an FX strategist at Saxo Bank -- takes the cake, saying: "A response to a serious outbreak threat could mushroom into a major economic catastrophe as even a 'minor' outbreak of just a few thousand sick people geographically distributed around the world could invoke a massive and unprecedented response."

Did you get what he's on about? Me too, but it sounded scary.

The same as it was in 2003 and 2009, when the birds and the pigs threatened humans and economic growth there is now a growing concerned chorus on the coronavirus.

Like SARS, the swine flu and many others before them, the coronavirus will not end the world.

Instead of hitting the sell panic button, investors should take this opportunity to add to their stock portfolios.

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