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Coronavirus: What's the Financial Impact Thumbnail

Coronavirus: What's the Financial Impact

By: Rich Cheever

We’ve received a number of calls about the Coronavirus outbreak and thought we’d share our initial thoughts of what the longer-term impact might be on financial markets.  We recognize the human tragedy of the outbreak and understand the concerns about the short-term volatility that similar events have brought to financial markets.  History suggests the long-term economic implications might be fairly benign.

According to the CDC (Centers for Disease Control and Prevention), as of January 27th, there have been five positive[1] cases in the United States with two in California.  Details are continuing to unfold.  Conditions in China are more dire and the city of Wuhan is subject to travel restrictions. 

Medical reports such as these can be alarming and are reminiscent of other health scares such as the SARS (Severe Acute Respiratory Syndrome), Ebola or the Avian Flu outbreaks.  The timing of the coronavirus development is particularly impactful with it occurring at the onset of the Lunar New Year, an economically important time of the year in many Asian countries. 

GBB Wealth Images 3

We are certainly sensitive to the toll that a medical situation like this creates and don’t want to make light of it, but we want to address the economic and market impacts.  Chinese stock markets[2] lost over 4% in local currency term following news of the outbreak.  Concerns that there may be broader economic impact have echoed in domestic markets as well.   

If history is any guide, the economic implications will be short lived.  The graphic above illustrates market returns on the MSCI World Index - an index that measures the performance of developed economy stock markets - following previous global epidemics.

As one can see, these events do not seem to have any meaningful impact on market returns.  Again, we don’t attempt to quantify the human toll caused by these events, but from a market perspective, as of now, we don’t anticipate any long-term economic effects.

If you have concerns, feel free to reach out to your GBB advisor at (916) 924-7527.

[1] Out of 110 total cases under investigation, 5 have been positively reported as the 2019-nCov coronavirus, 32 negative and another 73 pending.

[2] Shanghai Shenzhen CSI 300 Index declined (4.2%) between 1/20 and 1/23 and the Hong Kong Hang Send Index dropped (4.5%) from 1/17 to 1/23.

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