One major point of note is that this outbreak is unfolding just before Chinese New Year which will take place on the 25th of January. As China has developed economically, the ability of its citizens to travel around the country by air to visit family has dramatically increased. The chart below (figure 1) shows the increase in internal flights over the last 9 years, this could potentially create a major problem as the number of internal airline passengers is now significantly higher than it was in 2003 during the SARS outbreak and it has been confirmed that this coronavirus is being transmitted human to human.
Whenever events like these begin to occur it is always useful to look at historical precedent in order to gain context and a view on what the impact could be. The below charts, using data garnered after the 2003 SARS crisis can provide this.
The above chart (figure 2) shows estimates from the Asian Development Bank giving us an indication of the economic impact that the SARS outbreak caused in 2003 and why this current outbreak should be watched closely. Based on this data it shows Hong Kong suffering the largest share of the economic impact although we would question the reliability of Chinese government data.
Figure 3 shows the reduction in international airline passenger numbers in the month of April 2003 to a group of Asian countries. A significant point to note is the sharp drop in passenger numbers to Hong Kong - this could be significant if the new virus does continue to spread. Hong Kong has already suffered massively reduced tourist numbers due to the protests that took place there throughout 2019 and recent economic data including Purchasing Managers’ Index (PMI) numbers from Hong Kong have been weak, indeed it entered recession in the third quarter of 2019. The Hong Kong economy, already fragile, would be especially vulnerable to any fall in visitor numbers due to the outbreak of this virus.
To conclude, we remain vigilant but the importance of these events on markets remains unclear. Like many of these styles of events, although markets in the short term can react and indeed in many cases overreact, over the long term the effect they have has been insignificant. Markets this morning are reacting with the FTSE down and US futures also in negative territory following a fall of 2.7% in Hong Kong overnight, but what the long-term impact could be remains unclear, we will watch events closely.
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