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29 April 2009
Zealand, the disease hit in 1918, infected over one third of New Zealand’s population and killed an estimated 8,000 people in just four months. With a big proportion of the population staying at home, economic activity was severely disrupted, although this
was compounded by the ending of World War I. US industrial
production slumped 18% between March 1918 and March 1919. The sharemarket impact is hard to discern given the volatility
By Dr Shane Oliver, Head of Investment Strategy and Chief
associated with the ending of WWI, however in the US shares rose
Economist for AMP Capital Investors
The SARS outbreak of 2003 is perhaps a more useful guide to
predicting the economic and ﬁ nancial market damage a pandemic
• Swine ﬂ u deaths in Mexico and the spread of cases around the
might cause. After emerging in China around February 2003, SARS
world have lead to fears of a global ﬂ u pandemic.
infected about 8000 people (mostly in Asia) in 30 countries over a ﬁ ve month period and had a mortality rate of about 10%. While
• Coming at a time when the global economy is already
the number infected was not that great, SARS had a big negative
weakened, pandemic fears have already caused nervousness in
impact on the countries most affected as people stayed home
sharemarkets and more weakness is possible.
for fear of catching it. While the number of new cases peaked in
• While there is reason for concern, the experience with SARS
April 2003, GDP in Hong Kong and Singapore (two of the countries
and bird ﬂ u highlight that worst case pandemic fears don’t
most affected) slumped by over 2% in the June quarter of 2003 as
usually come to pass. The world is also better prepared for a
retail sales fell, workers stayed home and travel dried up. Growth
viral pandemic now. The key for investors is to be alert, but not
SARS experience in 2003, HK and Singapore
Number of new
As if investors didn’t have enough to worry about, concerns about
SARS cases, RHS
another ﬂ u pandemic – swine ﬂ u in this case – are now causing
concerns globally following deaths in Mexico and it’s spreading
HK GDP (LHS)
to various parts of the world. The World Health Organisation has
Singapore GDP (LHS)
declared the outbreak a “public health emergency” and raised
its pandemic alert rating to 4 (on a scale that runs to 6). Global
sharemarkets have been rattled by concerns about its economic
impact with travel related stocks being hard hit so far. While a ﬂ u
pandemic - were it to eventuate - would ﬁ rst and foremost be a
human tragedy, the economic and ﬁ nancial market impact would
Source: Thomson Financial, AMP Capital Investors
also be signiﬁ cant. The swine ﬂ u outbreak has come at a time
Reﬂ ecting SARS, Asian shares fell in April 2003, even though global
when the world is already weakened by the global ﬁ nancial crisis.
shares started to move out of a three year bear market from
That said, there is a real danger of overreacting to the outbreak
March. The April 2003 low in Asian shares coincided with signs the
of swine ﬂ u; it could just turn out to be a nasty version of the ﬂ u.
number of new cases was peaking, and this was well ahead of the
Recent experiences with SARS and bird ﬂ u highlight that worst
case pandemic fears don’t always eventuate. This note looks at the risks.
SARS pushed Asian shares lower, but they turned as
the number of cases peaked
Past experience – Spanish fl u, SARS and bird
Asian shares, ex Japan
Before looking at the swine ﬂ u outbreak causing concern, it is
worth reviewing past pandemics – both real and feared. There
were three inﬂ uenza pandemics in the last century: 1918-19,
1957 and 1968. The 1957 and 1968 pandemics are estimated to
9% underperformance by
Asian shares at height of
have killed up to 4 million people. However, the 1918 Spanish
SARS pandemic in April
ﬂ u pandemic was the most severe. While the mortality rate was
low, up to 50 million people died worldwide. In the US, the ﬁ rst
case was reported in March 1918 and deaths peaked sometime between September 1918 and March 1919 (with possibly a
Source: Thomson Financial, AMP Capital Investors
double peak), but cases were still reported as late as 1920. In New
More broadly though, we need to see an acceleration in broader
• Today many countries are also far better prepared given all the
money supply and credit growth. In this regard the evidence is
concerns about bird ﬂ u over the last few years. Less developed
mixed so far. See the ﬁ rst chart.
countries are of course more vulnerable.
Most pandemics have taken six to 18 months to run their course
• In addition, the world is mobilising against the threat, so this
and usually dwindle as measures are taken to slow their spread (for example, hygiene, quarantining, banning gatherings and
preventing travel). SARS ended quicker due to the nature of the virus and rapid action by authorities.
Coming at a time when the world is in its worst recession since
the great depression and investors are still very nervous, concern
In 2005 and early 2006, there was signiﬁ cant concern that a
about the swine ﬂ u outbreak turning into a global pandemic
severe strain of bird ﬂ u (resulting in human casualties mainly
could drive a setback in sharemarkets.
Travel related stocks are
in parts of Asia where people had contact with chickens) would
most vulnerable followed by consumer related shares, whereas
mutate into a form that was readily transmissible between
healthcare stocks (particularly manufacturers of anti-virals) could
humans. However, this didn’t really eventuate. Consequently,
the economic impact was modest, although it did cause bouts of volatility in sharemarkets in 2005 and early 2006.
A full blown swine ﬂ u pandemic with millions of deaths could also deepen and extend the global recession already underway - global
What do we know about swine fl u outbreak?
travel would virtually cease, workers would stay at home and the supply of goods and services would be seriously interrupted. If this
As it’s early days there isn’t a lot of information on the swine ﬂ u
were to occur the bear market in shares would likely resume and
virus now causing concern. However, here is a summary of what
However, while there is reason for concern and it is easy to dream
• The swine ﬂ u virus causing concern (inﬂ uenza type A, H1N1)
up nightmare scenarios, the experience with the SARS outbreak
appears to contain genetic material from human viruses, North
of 2003 and the pandemonium over bird ﬂ u with “predictions”
American bird viruses and pig viruses. It may be completely
it could kill as many as 150 million people tell us that the worst
new, or it may have been around for a while having become
case fears of pandemics usually don’t come to pass.
only recently detectible due to new testing and surveillance
the same will apply to the swine ﬂ u outbreak and any setback
in shares driven by pandemic fears will just provide a buying
• As a number of cases have had no direct exposure to pigs, the
opportunity. Certainly the lack of deaths outside of Mexico so
concern with this virus is that it has the ability to transmit
far, signs that anti-virals appear to be effective and the better
between humans. This is something that the H5N1 bird ﬂ u virus
preparedness of the world for a pandemic after the scares of
never really attained (at least not so far).
recent years are positive signs in this regard. These considerations
• In Mexico it also seems to be hitting young adults (20 to 35 year
suggest that while there might be a bit of short term volatility
there is unlikely to be a major impact on sharemarkets. That said, given the risks and with many ﬂ u pandemic experts agreeing that
• It has apparently killed 150 or so people in Mexico. But so far
a new pandemic could occur any time, it will be necessary for
there have been no reported deaths outside of Mexico. For
investors to keep a close eye on how swine ﬂ u develops. The key
example, Health Ministry ofﬁ cials conﬁ rmed last night that
for investors at this stage is to be alert, but not alarmed.
three of 11 Rangitoto College pupils had contracted the virus after a trip to Mexico, but reports indicate they are recovering. As such, the deaths in Mexico may have something to do with its less able healthcare system. It is also worth noting, that already hundreds of people die from ﬂ u every year.
• More signiﬁ cantly, while there is no vaccine that protects
against swine ﬂ u, two anti-viral drugs, Tamiﬂ u and Relenza, have been effective against the new strains according to the US Centers for Disease Control.
Wellington ofﬁ ce
Auckland ofﬁ ce
AMP Capital Investors (New Zealand) Limited
AMP Capital Investors (New Zealand) Limited
or visit www.ampcapital.co.nz
While every care has been taken in the preparation of this document, AMP Capital Investors (New Zealand) Limited makes no representation or warranty as
to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This
document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An
investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to
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