Jan 27, 2020 - Corona Virus was everywhere in the media today. This morning's report was about 3000 known infection cases and about 80 reported mortality cases.
The fear of Corona end of last week was also starting to affect financial markets. The german DAX as well as the Dow Jones and other indices were taking a noticeable drop late friday and today. Certain industries were more heavily affected, such as travel or holiday related businesses, but also luxury goods. But in the end a lot of different industries may or may not be affected depending on the severity of the further spread of the Corona Virus, like tech companies but also a lot of other companies involving China in their supply chain. In the end most stock prices in the german index today dropped (approx. 2.4 % average today).
Is there reason to panic (yet)? What can you do to hedge Corona's financial market impact? Can Corona be the black swan event to cause the next stock market crash?
Here are some dates and facts to hopefully get a more rational view on things and maybe calm down a bit.
Although every severe sickness is dramatic, especially due to people losing their lives, everything needs to be put into relation to historical data. So what can we see looking at the numbers?
2020 Corona Virus so far: 3000 infection cases, 80 deaths, population of China approx 1.400 Mio people
Average Influenza(flu) in Germany (annual average): 800.000-3.000.000 infection cases, 8.000-11.000 deaths, population of Germany approx 83 Mio people
I have no intention to play down things, but if we just look mathematically at the numbers to bring both in relation, the infection cases in China would need to be in the several hundred million range and the deaths in the hundred thousands range to match comparable fatality numbers.
Also it seems that China is taking significant measures unlike any measures that I am familiar with in Germany to prevent further spread of the Virus.
Still I expect further increased volatility in the markets over the next days and weeks as it is yet unknown what financial impacts those Quarantines, travel restriction etc. will have on economy.
So - how do we hedge Corona Virus' market impacts?
I read some articles tonight about investing in biotech, pharmaceutical companies and/or companies that develop vaccines. Like Novavax or Inovio Pharmaceuticals for example. Well - good luck if you are in for a gamble. Indeed some of these stocks showed a significant reaction today and if you got in and out at the right moment - congratulations. But as a longer term investment I would not bet on Corona as these stocks will most likely just go back to normal after few weeks as people learn more and figure out that they rushed a little too much.
Developing an effective vaccine and get submission can take many years or decades. Did you know that the Corona Virus is of the same family as the SARS and MERS Viruses?
SARS became first known in 2002, MERS appeared in 2012. For both of these there still is no effective vaccine approved for humans. So do not put your bets on a miracle company that will develop a vaccine vs. the current Corona Virus within a week....
So the solution of hedging Corona may be quite simple. Just watch the general current market volatilities that will be boosted by the Virus panic and buy the general dips of stocks that you may have wanted to buy anyway. I expect quite some stocks to be available at discount prices over the coming days and weeks that will not be directly related to Corona but just to the boosted market pessimism that may be going on for the moment. After all Corona may just bring the long needed correction to the generally overvalued markets.
I am not responsible for any gains and losses that may result from the opinions expressed here. I encourage all investors to conduct their own research before making any investment decisions.
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