- The fast spreading of the Corona virus is rattling financial markets in reminiscence of the deadly 2002/03 SARS epidemic.
- Indeed, Corona is spreading even faster than SARS as it is deemed infectious during incubation. Also, given China’s heavier weight in the world economy (19% today vs. 9% in 2003) the potential damage to global growth is even stronger.
- That said, there are important mitigating factors. The mortality rate among infected people is lower (2-3% vs. 10% for SARS), and the reaction by Chinese authorities has been much swifter and stronger this time. Medical advances will likely facilitate a much quicker development of vaccine, too.
- Markets tend to overshoot as the number of cases rises exponentially. Past evidence shows a V-shape recovery once the number of new cases per day starts to slow. Investors know this, and some will try to front run the turn in sentiment.
- The near-term outlook is shaky (and more so as the first US primaries are around the corner) but unless the drastic measures to contain the spreading fail, we expect this to be a buying opportunity.