On Market Volatility, Viruses, Sporting Events and More
Photo by Ben White
Last week, as Covid-19 virus reports said there were over 86,000 people infected globally, resulting in over 3,000 deaths, asset prices around the world had broad swings, with strong declines in equities and commodities.
Heightened market volatility was driven by 1) concerns that the virus would spread beyond Asia and 2) uncertainty about its economic impact. The following chart presents the S&P 500 stock index volatility (VIX) since January 2000, including last week's volatility spike.
Selected Observations on the Virus' Impact on Travel and Events
So far, COVID-19 related travel advisories have been issued by various governments for the following regions: Mainland China, Hong Kong, Italy, Iran, Lebanon, Japan, Mongolia and South Korea.
International Airlines have cancelled or modified their services in the affected regions.
2020 Summer Olympics in Japan: The International Olympic Committee will decide if a cancellation is required by the the end of May.
Formula One Racing: Chinese Grand Prix on April 19 is cancelled. Other event cancellations are under review.
2020 UEFA European Football Championship: According to Michele Uva, a member of the UEFA executive committee: “The sporting path will only be closed if the situation gets worse.”
Many conferences have been canceled or postponed including: Mobile World Congress (Barcelona), Facebook Global Marketing Summit (San Francisco), Facebook F8 (San Jose, CA), EmTech, Asia (Singapore), Game Developers Conference (San Francisco), Google News Initiative Global Summit (Sunnyvale, CA), Shopify developer conference (Toronto).
Eventbrite, an event management and ticketing service said: "We have seen early evidence of event cancellations that appear to be associated with the coronavirus, and we expect the outbreak will impact live events and attendance in the near-term."
From Bill Gates’ New England Journal of Medicine article “Responding to Covid-19 — A Once-in-a-Century Pandemic?” (Feb. 28, 2020):
“In the past week, Covid-19 has started behaving a lot like the once-in-a-century pathogen we’ve been worried about. I hope it’s not that bad, but we should assume it will be until we know otherwise.
There are two reasons that Covid-19 is such a threat. First, it can kill healthy adults in addition to elderly people with existing health problems. Second, Covid-19 is transmitted quite efficiently.
"given the economic pain that an epidemic can impose — we’re already seeing how Covid-19 can disrupt supply chains and stock markets, not to mention people’s lives"
From the US Center for Disease Control (CDC):
"The potential public health threat posed by COVID-19 is high, both globally and to the United States. But individual risk is dependent on exposure.
"For the general American public, who are unlikely to be exposed to this virus at this time, the immediate health risk from COVID-19 is considered low.
"it’s important to note that current global circumstances suggest it is likely that this virus will cause a pandemic. In that case, the risk assessment would be different."
From the World Health Organization (WHO) on environmental risks:
“worldwide, there is an apparent increase in many infectious diseases, including some newly-circulating ones (HIV/AIDS, hantavirus, hepatitis C, SARS, etc.)
"This reflects the combined impacts of rapid demographic, environmental, social, technological and other changes in our ways-of-living. Climate change will also affect infectious disease occurrence."
OUR TAKE
Regarding market volatility: As investors consider the global economic impact of the COVID-19 virus, other factors to consider include overvalued stock valuations, the potential of a global recession, rising levels of government debt and uncertain political leadership.
Regarding Bill Gates comments: As he focuses on funding for pandemic medical care, a broader topic to consider is the problem of increasing health care inequality.
Regarding CDC comments: It is likely that the risk profile of the virus for the US will be similar to other countries outside of Asia.
Regarding WHO comments: Global growth economic growth has come with increased environmental risks. The future will require adaptive approaches to these risks - and better responses to crises such COVID-19.