A Brief History of Viruses and Markets
Over the few past weeks newspapers and prime time television have been filled with information on the outbreak of the coronavirus in Wuhan, China. Cities have been put into quarantine, airports have been shut down, airlines have stopped flying and corner stores have sold out of everything from masks to bleach.
While the virus continues to spread, it’s worth noting that so far it has been significantly less fatal than the Ebola outbreak in 2018, the SARS virus in 2003, or the much more severe swine flu.
If we look at global markets over time, we can see that epidemics occur quite frequently but are always resolved through declining infections, containment, or better still, a cure.
The Chinese government has announced billions of dollars in support for its economy so far. China remains focused on supporting its economy and, given the government has almost US$3 trillion in reserves, any slowdown in economic growth is likely to be short lived. When the epidemic is resolved, people will be back to work, spending, travelling and contributing to economic growth again.
Over the past few months economic data had been improving, inflation had been steadily rising and housing in NZ was starting to pick up. This had led us to believe that it would be likely for interest rates in NZ to increase, so we had positioned Booster portfolios accordingly. Given the current situation, we have moderated our views, as economic growth may slow a little in the short term. This gives central banks, globally and in NZ, a reasonable excuse to maintain lower interest rates for longer. In the NZ fixed interest sector, we were positioned for interest rates to rise going into 2020 and since have returned to neutral. In the equity portfolios, the most affected areas have been related to tourism. However, we have little global exposure to airlines or tourism related companies. In NZ shares, we have a reduced holding in Air New Zealand and we don’t hold campervan rental operator, Tourism Holdings. Both declined 10-20% over the last few weeks.
Overall, we don’t know yet when this epidemic will run its course. While we can’t understate the tragic impact on individuals, families and communities, history suggests that any economic and stock market impact won’t be long-lasting, based on similar past epidemics. If you would like to read more about the history of epidemics, one of our global managers, Fisher Investments from California, released this fascinating article: Fisher Investments: The history of pandemics and stocks.
March saw the Coronavirus have a more tangible effect at home, with the move to lockdown in New Zealand taking it from a global event to something with a very clear impact on our day-to-day lives. Meanwhile, share markets around the world continued to be volatile, with the US S&P 500 index staging a dramatic partial 18% recovery in three days towards the end of the month.