COVID-19 and Financial Markets Part I of III by Les Nemethy and Sergey Glekov

COVID-19 has taken approximately 3,000 lives to date, and infected approximately 90,0001 people in over 60 countries. This article is not about the humanitarian aspects of COVID-19 (which are not to be underestimated); rather, we deal with three questions: as of today, at March 2020, knowing what one knows about the disease,  (a) can the disease be contained or will it become a pandemic; 
(b) what effect can be expected on the economy and financial markets?  and 
(c) what are the implications for one’s personal investment decisions? 

This first article in a series deals with only the first question. 

We should emphasize that we are not medical experts, and have formed our worldview on this subject by an extensive literature review.  It should be emphasized that there is a great deal about COVID-19 that even the experts don’t know.

COVID-19 has spread to all continents except for Antarctica. While the disease is believed to have originated in Wuhan, China, there are already more reported cases outside China than inside China.

Exhibit 1. – Coronavirus COVID-19 Global Cases2 Studies estimate the death rate of COVID-19 at between 0.5% to 4%3. The death rate may depend on factors such as quality of medical care, stage of disease at which the patient seeks medical care, age of patient, etc. 

Another important indicator of any disease is its contagiousness or in medical jargon, its “reproductive number”: the expected number of additional cases that one case will generate, on average, over the course of its infectious period. From this point of view, COVID-19 is really more dangerous than seasonal flu, in that its reproductive number is 2.2, compared to 1.3 for most types of flu.4 In other words, not only is it deadlier than most types of flu (but not nearly as deadly as SARS), it is also more contagious—a kind of superflu. Exhibit 2. – Comparison between pandemics of XXI century5
  Year(s)  Mortality rate (estimates) Reproductive  Number (estimates) Number No. of Deaths (as of 2nd March)
Coronavirus 2020 2.5% 2.50   3 048  
SARS 2003 10.0% 2.50 774
H1N1 2009 0.02% 1.46   203 000  
Ebola 2014-2016 50.0% 1.25   11 325  
Exhibit 3. – Fatality rate & average number of people infected by each sick person6 COVID-19 has an incubation period estimated between 14-24 days, during much of which there are no symptoms, when the carrier of the virus is still contagious.  This is possibly what makes containment of the virus so difficult. Newer ways of transmission are being discovered—via feces and through dogs. There are at least two types of environments in which the virus can spread more rapidly, and is likely to be more deadly:
  • poor countries, characterized by lower quantity and quality of medical facilities and few resources;
  • authoritarian countries, where for political reasons, decision makers are in denial, or may constitute a bottleneck, or are in denial).
The first cases of COVID-19 have recently been reported in more crowded and less affluent countries such as India, Indonesia and Nigeria.  Poorer countries like Niger and Togo have even poorer medical infrastructure. Countries like this are potential powder kegs. (Given that the virus spreads through feces, countries known for extensive outdoor defecation, like India, could be particularly vulnerable). The degree to which the disease spreads in these poorer countries will be crucial to the global outcome. Even if developed countries with excellent containment programs, such as Singapore, are able to eradicate the disease, they may be faced with a difficult choice of cutting off travel from large swaths of the world, or will be under a threat of resurgence of the disease.

The big questions:  is containment still possible, or will COVID-19 develop into a pandemic?

Given the covert ways in which the disease can be transmitted, and large number of diagnosed cases, with possibly many more cases undiagnosed, it seems that we are well past the possibility of containment.  

We see only three things that could eventually slow down the virus:
  • Development of a vaccine (a possibility within 6-12 months)
  • Warming weather reducing transmission rates
  • Resistance levels building up in the human population (after large numbers of people exposed)
At some point, Governments may decide that the effects of the cure are worse than the disease.  If you lock down tens or hundreds of millions of people, and production stops, the economy collapses, governments have a very different set of problems.  So once the prevailing wisdom shifts to a view that containment has failed, we may see efforts to contain the disease to be called off or reduced, resulting in further contagion.

According to the World Health Organization, seasonal influenza epidemics are estimated to result in about 3 to 5 million cases of severe illness per annum, and about 290 000 to 650 000 respiratory deaths7.  COVID-19 may well just enter into the general influenza pool, albeit greatly augmenting the number of deaths, perhaps into the millions, at least for a few years. (The world now experiences 1.35 million deaths from auto accidents a year8. While the humanitarian cost is staggering, the world moves on).

This is perhaps the most unfinancial article we have written.  But the assumptions in this article will underpin our analysis in the next two articles, namely, (a) effects on the economy and financial markets; and (b) implications for your investment portfolio.
1Johns Hopkins CSSE as of March 02, 2020,
2Johns Hopkins CSSE
3WHO Director-General’s opening remarks at the media briefing on COVID-19 – 24 February 2020,—24-february-2020
4Early Transmission Dynamics in Wuhan, China, of Novel Coronavirus–Infected Pneumonia,
5Various sources: Johns Hopkins CSSE, CDC, WHO, BBC
7Influenza (Seasonal) by WHO,
8Global status report on road safety 2018 by WHO,

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