Financial analysts haven't recognised the Black Swan.
Market sentiment is reacting to false signals, missing important signals.
Comparison to past epidemics is mostly misguided.
Some insights from an infectious disease epidemiologist.
I have worked as an infectious disease epidemiologist in response to four emerging infectious disease outbreaks. Hantavirus Pulmonary Syndrome in the US in 1993, SARS in 2003, the 2009 influenza pandemic and now the novel coronavirus (now named COVID-19). Coronavirus is different. Report after report makes comparisons to past epidemics as if they are similar entities.
While there is still a lot unknown about the infectiousness and severity of this virus we can be certain of a few things:
• The virus is spreading even under draconian quarantine measures in China
• Highly sophisticated hospitals with more beds per thousand population (> 6/1000) than in some high income countries such as the USA and Australia became overwhelmed.
• Unlinked, uncontained cases are occurring in multiple countries.
• Singapore documented 7 of their first 46 (15%) cases as requiring intensive care which is consistent with the initial findings in China, suggesting that uncontrolled transmission will overwhelm hospital and intensive care services even in highly developed countries.
• The lack of identification of cases in Africa and Indonesia, who surely must have cases, suggests that even if China were to control the virus there will be other countries that could reseed the virus around the world.
We can be less certain about it's infectiousness and case fatality rate. There is a question about the veracity of data coming out of China. It may be exaggerated because it focuses on the severe end of the spectrum, missing mild cases in the denominator. It may be underestimated because not all deaths occur in hospital or are missed in hospital.
The best guide to severity may come from watching a well defined population such as the passengers on the Diamond Princess or the cohort of cases who left China and have arrived in other countries. So far only 5 cases have died from the cohort of overseas diagnosed cases. Given it takes a median of approximately 2 to 3 weeks to die from coronavirus, most of the 800 cases diagnosed outside of China (as of 19th Feb) will have progressed to recovery or death by early to mid March and we will have a better indication of overall mortality at that time. Currently, if we apply the 5 deaths to the 150 cases identified outside of China two weeks ago, we can estimate a 3% case fatality rate to that group. This is much higher than many of us expected and worryingly similar to that of the 1918 Spanish Flu pandemic. The current number of deaths outside of China are too small to rely upon and this calculation should be revisited in mid-March. If we look at Singapore, there were reportedly 7 people in intensive care from a case count of 46 cases (15%). We need to note these are small numbers but they are concerning. Given there is a lag between cases being counted and admission to ICU, the percentage would be higher than 14% if the trend continues.
This will be a long battle and most western governments will be unwilling to apply the level of containment that China is attempting. The travel industry is obviously seriously impacted. However, analysts appear to be still underestimating the impact. Take the recent report from CNBC quoting Macquarie Capital on Royal Carribean Lines that coronavirus fears surrounding the company are “overblown,”. This in part because China only represents a small part (6%) of RCL business, they state.
It should be clear by now that the impact will not be related just to passengers or demand from China. The images and Youtube pleas for help from quarantined passengers will have a massive impact on consumer perceptions. Once the coronavirus spreads to other countries, quarantine could happen to passengers from any port in the world. “Just today another article on Seeking Alpha downplayed the impact of coronavirus.
The article comes to the conclusion that, “the virus is more analogous to a highly contagious and stronger flu than it is to other deadlier viruses. This leads us to our overall optimistic view of the situation.” The article assumes a mortality rate of 0.4%, a little over double the mortality from seasonal influenza in the United States. It also assumes a transmissibility about 3 times that of seasonal influenza, and yet they are optimistic? Maybe it is because they did not run the numbers on impact due to higher attack rates in a pandemic. In the USA, only about 10% of people become symptomatic with seasonal influenza. That’s because a large proportion of the community have prior immunity from infection or vaccination (30-80% protective depending on age of patient and strain of flu). If coronavirus infects 30% or 50% of the population in the first wave, then we have an illness that is twice the mortality of influenza with up to 5 times the cases. Putting the higher mortality and a high-end increased attack rate together produces about a 10 fold number of deaths due to coronavirus compared to influenza – that’s about 370,000 people in the USA. This is not my prediction. It is simply an illustration, using the assumptions in the optimistic article, of the gaps in some of the analysis being put forward on coronavirus. I doubt that the author would have come to an optimist view of the situation if the likely higher attack rates were factored in.
Additionally, it doesn’t factor in the significant social distancing activities that will be undertaken in the USA and elsewhere to attempt to limit the peak impact of the virus. As Dr Nancy Messonnier stated in yesterday’s CDC Update, if coronavirus begins spreading widely in the US the government may enact stringent mitigation and social distancing interventions such as school closures, recommend working from home, and cancellation of mass gatherings.
These interventions are designed to slow the rise of cases and blunt the peak of the epidemic so hospitals, intensive care units, and important public services can cope with the number of cases. A sharp rapid rise, as happened in Wuhan, overwhelms the system and is to be avoided at all costs. This mitigation phase could last for many months, making it difficult for people to attend their workplace, further affecting supply chains, and impacting many parts of the service and entertainment industry. Mitigation phases may be implemented at different times in different countries. They will cause disruption if they overlap and if they occur in sequence could run through to 2021.
Many analysts are looking only a few months into the future making comparisons with the relatively short-lived SARS outbreak of 2003. While coronavirus is certainly much less fatal, it appears to be much more infectious and more likely to become a global pandemic than SARS. Comparisons to the 2009 influenza pandemic are probably not relevant either as this was one of the mildest pandemics of the last hundred years and people over 65 years were relatively less impacted - having some immunity from past exposure. Coronavirus will likely have a much broader global impact than SARS or the 2009 pandemic. While the severity is less than that of the 1918 influenza pandemic, comparisons of economic impact are difficult considering the degree of globalisation that has occurred over the last hundred years.
Many important international meetings are already being voluntarily cancelled and this is before formal directed social distancing has been put in place. Even conferences in countries with no person to person transmission such as the Mobile World Conference in Spain (100,000+ attendees) has been cancelled. And multiple meetings have been cancelled in the USA. It would be very surprising if the Tokyo Summer Olympics was not postponed.Market analysts are responding to positive statements about potential cures and treatments without discernment. Vaccines are at least 12 to 18 months away and clinical trials need to be run on experimental therapies yet the market responds rapidly to mere anecdotal mentions of potential therapies. Scaling new therapies and building production for a global pandemic is challenging.
So, I don’t know how this virus will play out epidemiologically, and I know even less about the impact it will have on the economy and society. It could evolve like the 2009 influenza pandemic, in which governments decided that quarantine and other mitigation interventions caused more harm than the virus and switched them off. But that would be a brave prediction at this time. Analysts that understand the early indicators of this outbreak should be contextualising it as potentially one of the gravest epidemic threats of the last hundred years.
But the purpose of this article is not to predict an outcome, but more to promote a sceptical assessment of analyses suggesting this is a short term event on a par with SARS or recent pandemics.
(Blog post updated 19th February, 2020)
Dr Craig Dalton is a public health physician and conjoint Associate Professor at the University of Newcastle, Australia. He is a former CDC Epidemic Intelligence Service Officer and runs Flutracking.net one of the largest national surveillance systems for influenza-like illness in the world.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.