Markets hunkered down last week.
News of the coronavirus outbreak in Wuhan, China unsettled investors around the world. The respiratory infection is related to severe acute respiratory syndrome (SARS) and Middle East respiratory syndrome (MERS), reported WebMD.
Previous virus outbreaks have affected global economic growth. Research into pandemic preparedness suggests extreme events can reduce global annual income by 0.6 percent per year (including mortality and income loss). Lower income often is equated with slower economic growth.
Viruses can also affect companies and share values. However, not every investment will move in the same direction at the same time, and not every country or industry will be affected in the same way.
“SARS infected more than 8,000 people in 2003, killing more than 770. The outbreak occurred between November 2002 and July 2003. Stocks of U.S. airlines – a proxy for travel-related shares – dropped more than 30 percent from pre-SARS highs during that outbreak, about twice the decline of the broader S&P 500 index. All stocks, it appears, were impacted by the outbreak. It took about three months for shares to bottom and another three months to achieve previous highs.”
China responded to the outbreak by imposing a transportation lockdown, and that could affect China’s economic growth. S&P Global explained:
“The coronavirus is hitting China during Lunar New Year, a period when households tend to spend more on travel, entertainment, and gifts. Even if the virus is contained fairly quickly, the initial stages of high uncertainty are likely to affect spending.”
In addition, the city of Wuhan, where the outbreak began, is a major transportation hub and a center for auto production. It is China’s sixth largest city, home to 11 million people, and responsible for 1.6 percent of the country’s economic growth.
Major stock indices in the United States moved lower last week.
photo by: Coronavirus, virus which causes SARS and MERS. Disease, organism. © Katerynakon | Dreamstime.com