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article imageOp-Ed: Coronavirus market panic — Hype or hypochondria?

By Paul Wallis     Feb 27, 2020 in World
Washington - Global stock markets have reacted predictably to the coronavirus threat, with some, if perhaps not quite enough, justification. Big drops in indices are costing big money, but is the panic realistic?
The stock price drops have taken a while to happen. The markets have only now reacted to the coronavirus epidemic after nearly a month of grim news. The news, in fact, has been pretty equivocal. Doom and gloom sells clicks, but how accurate can it be?
Some basic information:
• Numbers of infections and deaths from coronavirus are nowhere near average annual influenza levels. (Influenza does still kill thousands of people worldwide.)
• People at risk are identified as older people and those with significant medical conditions.
• The link to the China trade is a meaningful issue for the markets, but hardly a crisis at this point.
• A lot of political point-scoring by people who should know better is blurring the facts. Managing a major epidemic is no joke, and the snide commentary is basically superfluous where it’s not just plain inaccurate.
• Can the rest of the world achieve a Chinese-style lockdown? It seems unlikely. Western health systems aren’t in exactly pristine condition. That is a legitimate cause for market angst, but the market isn’t exactly pressuring its pet politicians to do much about it, either.
• This virus can take up to 4 weeks to incubate. The outbreak, therefore, has been underway for a month longer than the news. That means its overall spread has been going on since about December last year, which reduces the figures to some extent.
• A small minority of the population get the virus, and many fewer die. The percentage of deaths is subject to many considerable and heated arguments, but it’s about 2-3% midrange.
The spread of the coronavirus
The spread of the coronavirus
So- Are the markets justified in nosediving? Yes to a point, but in many ways No.
1. To be strictly fair, coronavirus is a new disease. Nobody’s too sure what it can do, or how to manage it. The markets are by nature risk-averse, and understandably more so, in this environment.
2. Then there’s the response issue. The markets have every right to be very wary of the hit-and-miss crisis response management in the United States. This unreliable response process, which has been an absolute embarrassment since Hurricane Katrina, does little to inspire confidence. Little is done well, or quickly. The Puerto Rico hurricane response is a case in point.
3. Health systems around the world could, in theory, make a lot of money out of coronavirus. In practice, they can’t handle their current workloads, let alone a major epidemic of an almost unknown virus. No great reason for market confidence there, either. 4. Would you invest in a sector which is likely to run gigantic costs with not really much of a profit after those costs?
On the No side of the coin:
1. The markets seem to be ready to drop big money to get out of the danger zone. That’d be nice, but the outflow is causing real losses, with or without any hard facts. When markets go down, only so much of those losses are on paper. The rest is real money. Investors risk getting hurt on the basis of rumours and scuttlebutt.
2. Epidemics don’t last forever. Even the Spanish flu epidemic, which shut down America for a few months and killed a lot more people than coronavirus, was relatively brief.
3. Losing market position for risk aversion is normal enough, but losing this sort of money, purely on what might happen, is a pretty expensive hobby.
4. The information gathered about coronavirus simply isn’t good enough or definitive enough. It can’t be. They’re still working out the basics, and mapping the spread. The number-crunching is always going to be behind the eight ball for at least a few months.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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