This virus is not one you would get on your laptop after deep web diving, but instead, one you might catch from travelling a little bit too far out of the country. The news over the last few weeks has grasped international attention with regards to a recently discovered strand of the commonly known Coronavirus group. This group umbrellas other viruses such as SARS and MERS. The Wuhan Coronavirus appears to be more severe than its previously named cousins. The virus causes pneumonia in patients and in extreme cases, organ failure, with a current infected population at 35,000 and a death toll as of this morning at 1200, resulting in an approximate 2.3% fatality rate.
Now that we have a little understanding of what the virus actually is, let’s take a look at how a virus takes effect on the global stock exchanges. According to Neil Shearing, Chief Economist at Capital Economics, “the outbreak has the potential to cause severe economic and market dislocation. But the scale of the impact will ultimately be determined by how the virus spreads and evolves, which is almost impossible to predict, as well as how governments respond”. Due to the increased globalization found in today’s economy, many companies have secured trade routes and supply chain systems far from their corporate head office. Due to this, many of the labour positions in the supply chain have been shipped off to Chinese turf (the origination site of the Wuhan Virus). As the Chinese government continues to quarantine cities, business in those cities is crippled or even halted altogether. This has been shown by major car manufacturing plants being closed for the foreseeable future in order to help stop the spread of the virus. In the car industry alone, first quarter (profits) is set to be cut by 15% of their average year over year.
Another area that is being negatively affected is the luxury goods market around the world. China is home to millions of luxury brand purchasers. Many high-end storefronts in mainland China have closed due to the lack of consumers in the market. With this in mind, many high-end luxury brands are underperforming their estimates this quarter and are pulling away from the Chinese market. These Luxury brands include flights to and from China and most importantly the tech industry. With major manufacturers experiencing unprecedented drops in production, forecasts are expected to decrease companies like Apple, Samsung, and Dell’s performance for the first quarter, although we cannot see these effects yet; lead economists are predicting negative trends in the S&P 500.
Finally, let’s take a look at what happens to the worlds economy if the Wuhan Coronavirus continues to spread and reaches severe pandemic status. The World Bank conducted a study to see just how much of an effect a pandemic could have on the global GDP resulting in a conclusion that a severe pandemic could reduce global GDP by up to 5%. The occurrence of a pandemic can be related to the start of a world war according to the World Bank. With statistics like these, it is easy to see how dangerous a virus can be if left unchecked to our global economy.
As of now, we are speaking in hypotheticals due to the fact that a severe pandemic has not been present in recent history, the last one in the United States was the Influenza H1N1 (often known as Spanish Flu) virus present after the first world war. But there is no need to panic, the World Health Organization has not deemed the Wuhan virus as a serious threat to the worlds health and stated that they will be prepared to combat the virus as an international collaboration if needed.