So, what should be made of the new coronavirus?

Markets were on the back-foot this week as attention shifted from what appears to be an industrial cycle looking to turn up, which is positive, to the new coronavirus, which is negative.

First and foremost, our thoughts are with those who are infected and especially those who have died due to the virus. The new coronavirus, which originated in Wuhan city in China, has spread from the mainland to places as near as Hong Kong and as far as the US. Wuhan is the capital of Hubei province and has a population of 11m residents. It is nicknamed the Optics Valley of China due to the concentration of high-tech manufacturing firms, and the city accounts for 1.6% of China’s GDP.

Industrial production could be hit

The government has ordered a lock down of the city and if the lock-down continues after the Lunar New Year holiday, which ends 8th February, it will probably affect industrial production negatively. The editor of the Global Times tweeted this morning that 830 cases have been reported with 26 deaths. Based on in-house calculations, the vast majority of the fatalities (some 83%) have been patients who are over the age of 65.

Until more is known, the SARS pandemic of 2003 probably provides the best lens to think about the potential impact. The economic impact of SARS was significant but short-lived so it is probably too early to adjust portfolios on the data investors have. According to Goldman Sachs, in 2003 there were over 8,000 reported cases of SARS and case-to-fatality rate of 11%. So, it appears that the virus is potentially less deadly than the SARS virus, according to Bloomberg Economics. However, the world is still in the early stages of this outbreak and the virus could mutate, in which case the mortality rate could also change.

The two key uncertainties are:

  • 1) How transmissible is it ultimately?
  • 2) How deadly is it ultimately?

The answers will determine the risk the world faces.


So far, the signs are that China is handling this outbreak far more effectively than SARS and both the World Health Organisation (WHO) and various scientists have praised the government’s response. It has been made clear to Chinese officials that they must not hide any infections lest they be “nailed on the pillar of shame for eternity”.

China notified the WHO regarding SARS in February 2003, reporting 305 cases and five deaths. However, with this new coronavirus they notified WHO on 31st December, when there was only one confirmed case, according to the FT. Finally, Chinese health authorities were the first to post the full genome of this new coronavirus in the NIH genetic sequence database; this action has facilitated the detection of the virus.

© 2019 GWM