What is the coronavirus and how could it affect stock markets?
Global economy and stocks could be hit if the virus spreads more rapidly via human-to-human contact
Fears that the coronavirus outbreak, which has started in China, might spread across the globe have affected stock markets and companies connected to travel and tourism, as well as organisations earning revenues from China.
The Dow Jones fell on Tuesday amid fears that a pandemic might be about to hit. Markets in Europe the UK and Asia, have all been affected. So what is the coronavirus and how might it affect investors?
The coronavirus – what is it?
Coronaviruses are a large group of viruses that are common among animals. The viruses can sometimes be passed from animals to humans, and occasionally they mutate and can be passed from human to human, according to the US Centers for Disease Control and Prevention. It is this human transmission which has people most worried, as global travel means the virus could move quickly from one continent to another.
What are the coronavirus symptoms?
The most common symptoms are cold- or flu-like respiratory tract illnesses, which might include a runny nose, cough, sore throat, headache and raised temperature.
What is the threat of the coronavirus?
Young, elderly people and those with a weakened immune system are more at risk, because in them the illness could develop into something more serious, such as pneumonia or bronchitis. So far there is no vaccine and ore than 300 people having been infected by the virus, which the Chinese government has now confirmed can be spread via saliva.
It is the possibility of human to human infection that has caused most worry to governments and the stock markets. It has reminded investors of the 2003 SARS (severe acute respiratory syndrome) outbreak, another coronavirus that originated in China.
That pandemic, which started in November 2002 and peaked in February 2003, killed around 800 people. According to the World Health Organisation (WHO), there were more than 8,000 cases and one in ten people who contracted the disease died.
SARS caused widespread panic and affected revenues in and out of China, and hit travel stocks hard. The global economic loss in 2003 due to SARS was estimated at $40bn (£30.55bn, €36bn).
Both the S&P 500 and the Dow Jones were affected badly by SARS. The Dow fell from its high of $795 at the end of 1999 to a low of $491 in September 2002 – a fall of almost 40 per cent. The S&P 500 posted similar falls, as our chart shows.
Why are experts worried about the coronavirus?
Although the most recent coronavirus is not yet on the scale of SARS, there is concern that the outbreak has happened as many Chinese prepare to travel for Chinese New Year celebrations. There will be a huge influx of people coming to join in celebrations, and there is the potential for more human-to-human transmission.
One significant difference this time, however, is that the Chinese government has acted quickly and been much more open about the virus than it was during the SARS outbreak. This gives other nations a chance to introduce screening measures at their international airports.
Which companies could be hit by the coronavirus?
SARS had a massive impact on the global economy and stock markets around the world. The industries most affected by SARS were airlines, hotels and tourist destinations. People stopped travelling and hotels suffered losses as people scaled back on travelling.
This time round, travel companies and online booking companies could be affected again, as people cancel or postpone trips.
What's more, US companies selling luxury goods could also be hit if Chinese tourists are prevented from travelling. If Chinese consumers are not buying luxury Western goods this could impact on some well-known international designer brands.
Cruise companies, airlines and airline manufacturers, hotels and casino operators may also be affected due to people changing their holiday or business trips, or just by general negative market sentiment. Casinos, in particular, earn revenue from China and will be hit by any downturn in travel out of the country.
If New Year celebrations are more muted, then Chinese technology companies, such as Alibaba, may be affected by a downturn in digital sales.
Which companies will benefit from the coronavirus?
Stocks in biotech companies which make medicines for viral diseases and face mask manufacturers may be beneficiaries of the outbreak as investors anticipate increased demand for their products.
There is already huge demand for face masks. Experts such as Yuen Kwok-yung, a microbiologist at the University of Hong Kong, has warned against travel to Wuhan, the city at the centre of the virus, and recommended people wear a face mask while they are there and for two weeks after they get back in order to mitigate the spread of the disease. Chinese media has been showing footage of people wearing masks to travel around and get to work.
What is being done to reduce the effect of the coronavirus?
So far the Chinese authorities are acting to try to reduce the risk of transmission, according to the People’s Daily. Tour companies are not allowed to assist groups to leave Wuhan.
Police are carrying out checks on vehicles entering and leaving the city to see whether they are carrying live poultry or wild animals. Malaysia, India, Russia and the US are all carrying out screening checks at certain international airports in order to identify any incoming passengers who may potentially have the disease.
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