I remember when the only Corona you had to worry about were the Corona bubbles in your lemonade. The adverts of the 1970’s said every one of them had passed their physical!

The Corona on today’s worry list isn’t coming out of the Thomas & Evans Ltd carbonated beverage production facility in South Wales. It’s being exported globally from Wuhan, China. Unluckily for the world the Chinese are bloody good at global distribution.

As of this blog post there have been

  • 11,948 confirmed cases
  • 259 deaths
  • 15% death rate after hospitalisation

since the first week of December 2019.

DevDosh Ltd : What is it the Caronavirus

The Coronavirus is a viral infection. The clue is in the name. A virus is a microbe which is very,very tiny. It consists of a wall of protein wrapped around a genetic core. The core is either RNA or DNA. Viruses are like parasites. They need a host to survive. Viruses will pass from one organism to another via touch, or through the air. In simple terms one host will cough or sneeze a virus microbe out; another host will breath it in. Once inside the new host the virus will find a specific type of cell to live and reproduce in. The symptoms o the Coronavirus include coughing and shortness of breath. This indicates that the virus is living and reproducing in cells in the hosts respiratory system.

DevDosh Ltd : Coronavirus Source

The first group of people affected by the Coronavirus worked and shopped at a wholesale seafood market in Wuhan, China. The market also sold live and recently slaughtered animals. On this basis it is fair to say that the virus was passed from animal to human at this location.

A paper was published in the Lancet on the 30th January 2020. It specified bats as the original carriers of the virus. The theory is that bats passed the virus to an intermediary animal host. The intermediary animal host then passed it onto humans at Wuhan. Bats are credited with carrying many viruses. The bat virus carry list includes Marbug, Ebola, Nipah, Rabies and Hendra. Marbug and Ebola kills 80%-90% of humans infected. The reason bats do not succumb to the viruses they carry is due the way their body reacts to flight. Flying uses a lot of energy. Where energy is used waste is produced. This waste is harmful to the bats body. Bats have developed a sophisticated defence mechanism so that this waste cannot harm them. The defence mechanism is also very effective at stopping viruses from making them ill. In addition to this, flying is hard work and makes bats very hot. The resulting increase in body temperature kills or reduces the viruses ability to reproduce. This further keeps the virus under control. Unfortunately for humans one of the methods the immune system uses to kill viruses is to increase body temperature. If a virus has the ability to withstand a bats 40 degree celsius body temperature during flight, then a human fever wont be stopping it.  

DevDosh Ltd : Economic Impact of Coronavirus

There are several potential negative impacts to the worlds economy.

DevDosh Ltd : Pandemic Status Coronavirus Impact

Previous pandemics have had a marked influence on world GDP.

1918 – Spanish Flu – 50 to 100 million deaths – 2-3% mortality rate – COST 4.8% WORLD GDP

1958 – Asian Flu – 1 to 4 million deaths – <0.02% mortality rate – COST 3.1% WORLD GDP

1969 – Hong Kong Flu – 1 to 4 million deaths – <0.02% mortality rate – COST 0.7% WORLD GDP

The current IMF global growth forecast is 3.3% so an Asian Flu size pandemic could wipe out nearly all forecast gains in the next year. More worryingly a Spanish Flu size pandemic would cause a world wide recession. The current estimated mortality rate for the Coronavirus is 2%-4%

DevDosh Ltd : Epidemic Status Coronavirus Impact

Chinas last epidemic was the 2002-2004 SARS outbreak. It was a localised but severe outbreak that resulted in 800 deaths. The fallout knocked 18% from Chinas GDP. Recovery took 8-12 months.

Global impact wasn’t to severe for two reasons. Firstly the markets were depressed having just suffered the sell off from the DotCom bubble. Secondly Chinas GDP was a poultry 4% of global GDP, now it is an imposing 17%.

DevDosh Ltd : Chinese Supply Chain Coronavirus Impact

Of course macro influences micro and we will see these world stage number reductions filter down to market level. Chinese equities and other asset classes have already dropped. International supply chain stocks will be impacted next. Particularly vulnerable to a sustained Chinese downturn are Germany who are already in recession and Australia who are at record low growth rate and heading towards recession. In addition world economies are more greatly interdependent than ever before. This makes working together to stop a domino affect even more essential.

DevDosh Ltd : Market Valuation Coronavirus Impact

To further complicate the situation markets are currently richly valued and propped up with leverage. As previously stated the SARS epidemic occurred shortly after the DotCom bubble. The most recent pandemic of the Swine Flu outbreak hit in 2009 shortly after the GFC sell off. So both health disasters hit already depressed markets. Essentially markets where people had very little to lose. Today’s market sees equities over values after a 10 year bull run. So now long positions have a lot to lose if stocks correct to more conservative prices. Investor exposure at this level could make defensive position more likely and be the catalyst to a sell off.

DevDosh Ltd : The nuts and bolts of why

The reason that economies slow in the face of pandemics is self preservation. One would think it was the deaths and illness that posed the biggest threat to GDP, but it’s not. People disengage from others to insulate themselves from infection. This means they stop going to work, they stop travelling, they stop participating in leisure pursuits etc. In an effort to protect themselves the populace literally stops producing and stops consuming. Without these basic activities the financial life cycle ceases.

DevDosh Ltd : Conclusion

The Coronavirus situation is evolving on an hour by hour basis.Internationally countries are working together to stop it spreading and to create a vaccine. In the short term investors need to tightly monitor the indicators, markets need to stay strong and the smart money should seriously look at apportioning some of their capital to DevDosh Ltd