COVID-19: Will the market behave the same this time round?
Updated: Apr 6, 2020
In the past few days, Wuhan novel coronavirus has been the most trending topic with everyone fearing that this is going to be the repeat of the SARS in 2003. Between Nov 2002 and July 2003, SARS claim a total of 775 lives with a total of 8273 reported cases. It was a period of frenzy which hits China, Hong Kong and Canada badly as people were initially lost on how to handle such pandemic in the early stages of its onset. (On a side track, if you are curious on how SARS happened, I will strongly recommend you to watch The Next Pandemic by Explained on Netflix)
Moving forward to 2020, everyone is afraid that Wuhan novel coronavirus will have the same repercussions as SARs. With SARS in the not so distant memories for most of us, some of the investors then have a key question in their mind: Will the market behave the same this time round?
To answer that question, let's take a look at the Hang Seng Index during the SAR period: Nov 2002 to July 2003.
Here are some milestones during this period:
Nov 2002: First case of SARS diagnosed in Guangzhou
Mar 2003: WHO issues global alert
Apr 2003: SARS made top priority, WHO issue travel advisories against selected regions
May 2003: SARS deaths peak in Hong Kong, Toronto and Vietnam
July 2003: Last case reported in China
From the timeline, you can see that the HSI follows the timeline of the SARS very closely. The worst of SARS happens in Apr-May (when the deaths peak in several regions)- this is also when the HSI reaches its bottom. At its lowest point in this period, the drop is around 20% off the highs. Despite a turbulent year back then, the HSI recovers rapidly (a V shaped rebound) and rebound back to similar level seen at the start of 2003 by Aug 2003.
The current status of Wuhan novel coronavirus seems to be in the very initial stages with the first group of reported cases to be just less than a month ago (30-31 Dec). The HSI has minimal drop as compared to the value it has on 30 Dec. (Current HSI as of 24 Jan 2020 is 27,949 as compared to 28,189.75 as of 31 Dec 2019).
If history is to be used as any indication, we are currently at the very beginning of a market slump for the HSI. In the months to follow, there is a chance that we will see a quick and sudden drop of the HSI if the situation is to follow a similar pattern as compared to SARS in 2003. Caveat emptor.
Check out Part 2 here