108 INSIDER March 2020 http://www.insider.co.ukWEALTH MANAGEMENT: FRANCIS SHENNAN
IN FOCUS
Lifesaver will be big earner
Are there lessons to be learned
from effects of coronavirus?
A
VIRUS – even one as virulent as
coronavirus – is not a black swan. This
is blindingly obvious in zoology, but
not yet as obvious in investment. Hence
The Guardian headline: Will coronavirus make
markets take a ‘black swan’ dive?
A ‘black swan’ event is one that’s unpredictable,
rare and has a severe impact.
Yet last September the Global Preparedness
Monitoring Board of the World Health
Organisation warned the world was at risk from
deadly pandemics.
“Epidemic-prone diseases like Ebola, influenza
and SARS are increasingly difficult to manage,”
said the WHO, adding “the threat of a pandemic
spreading around the globe is a real one”.
In the last 17 years there have been outbreaks
of SARS in 2003, avian flu in 2006, dengue fever
2006, swine flu 2009, cholera 2010, MERS 2013,
Ebola and measles/rubeola 2014, Zika virus 2016
and measles/rubeola again last year.
The coronavirus and the attempts to control
it delivered a roller-coaster ride for investors.
World share prices fell, with Chinese shares in
their biggest fall for four years, oil prices hit a
three-month low and the gold price approached a
seven-year high.
The effect was wide-ranging hitting travel
companies such airlines and cruise lines, resources
such as mining shares, and companies with
exposure to Chinese supply chains such as Apple
or outlets such as Starbucks and Burberry whose
shares lost seven per cent in late January. Then
when investors thought the worst news on the
virus had been priced in, shares and oil prices
rose again.
Some share prices surged, such as Chinese
biotech companies that partner with GileadScience, Inovio Pharmaceuticals also in the race
for a vaccine, and face mask-maker Kawamoto
Corp. Vir Biotech which has provided antibodies
for other strains of coronavirus saw a 17.5-per-
cent jump in one day. (See In Focus.)
Given that another outbreak is likely to follow
coronavirus, what will happen next time?
Research by Dow Jones Market Data tracked
the changes in the Standard & Poor’s 500 share
index for six and 12 months after previous
outbreaks. In every case but one in the last two
decades, the index was up. Following swine flu in2009, the index was up 35.96 per cent 12 months
later. The only fall at 0.73 per cent came 12 months
after the 2014 measles/rubiola outbreak.
What limits the value of this data, though,
is that each outbreak happened in different
circumstances and at different times in the
market’s cycle.
The SARS outbreak happened after the sharp
fall of the dot-com crash, suggesting the market
was already climbing back up.
Armed with the lessons of this outbreak, and
the WHO warning that another will surely follow,
should allow us to develop an investment strategy
to deal with it.
What we don’t know is when or how severe it
will be. ■IT COULD prove to be the richest horse race in
the world – the winner will be the company or
companies that develop an effective vaccine for
the new Chinese coronavirus, officially known as
2019 Novel Coronavirus or Covid-19. It is the latest
of seven types of coronavirus to be discovered.
Gilead Science, quoted on the NASDAQ, has a
promising drug remdesivir, which not only lifted
its shares 7.4 per cent in one day last month, but
boosted its Chinese partner company shares –Shenzhen-listed Porton Fine Chemicals, Zhejiang
Yongtai Technology and Shanghai-listed Zhejiang
Jiuzhou Pharmaceutical Co.
Vaxart shares rose soared 72.1 per cent after
announcing a vaccine development plan based
on an existing oral vaccine, but this was against
the background of a 42.4-per-cent fall in the
preceding 12 months.
It is competing against large and small pharma
companies.AbbVie’s ABBV HIV drug Kaletra, which had
some effectiveness with SARS, is being used
to treat Covid-19. Inovio Pharmaceuticals and
Moderna have received grants to develop a
vaccine.
Speculation has led to fears of a biotech bubble- NanoViricides and Co-Diagnostics were both up
more than 145 per cent at one point. Short-sellers
have targeted smaller pharma companies with
accusations of fake news. ■
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Armed with the lessons, and a
WHO warning another will follow,
should allow us to develop an
investment strategy to deal with it