With over 43,100 cases of the coronavirus confirmed, and at least 1,018 deaths, investors and non-investors alike are wondering how severe this contagion will become, and if it has the potential to infect the economy like the SARS epidemic of nearly 20 years ago did.
“Over the past few weeks we have witnessed the emergence of a previously unknown pathogen that has [resulted in]an unprecedented outbreak,” WHO Director-General Tedros Adhanom Ghebreyesus said during a press conference at the organization’s Geneva headquarters at the end of last month. “We must act together now to limit the spread.”
WHO classified the contagion as a global health emergency, also known as a “public health emergency of international concern,” as an “extraordinary event” that is “serious, unusual or unexpected.”
The coronavirus, which is now being referred to as Covid-19, and is speculated to have come from bats or another animal species, has now spread to more than two dozen countries and on Tuesday the World Health organization’s (WHO) head said it’s a “very grave threat” to the rest of the world, according to a report from Reuters.
However, as convenient as it may be to compare the coronavirus spread to the SARS epidemic that from 2002 to 2003, a number of Wall Street analysts admonish investors that the generalized economic backdrop was vastly different in the early 2000s than it is today.
“SARS: unfortunately, the analogy doesn’t work,” Bank of America global economist Ethan Harris said in a note to clients Tuesday.
“A broad consensus has emerged that the SARS episode offers an imperfect but reasonable historical analogy for what is happening now. … We think the SARS episode is more misleading than useful.”
Harris noted that China’s expansion into a powerful global economic force over the last 15 years is a crucial difference. In 2002, China’s GDP was 4% of the global economy. In 2019, that number rose to 16%, he said.
However, Harris explained that in contrast to the early 2000s, where SARS was slow to be acknowledged, the government has taken swift action and the quarantines, which could hit the global economy hardest.
“From an economic perspective, the quarantine is the story, not the number of cases or deaths,” he said.
Despite the news however, stocks have continued their bull run, making fresh highs again today in the S&P 500 and Nasdaq indices.
Investors looking to climb on board could utilize the SPDR S&P 500 ETF Trust (SPY), SPDR Dow Jones Industrial Average ETF Trust (DIA), and Invesco QQQ to play the broader market.
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