Coronavirus vs previous outbreaks – Nordea

Considering the importance of analyzing historical market behavior around major epidemics, analysts at Nordea Markets recently came out with the market performance report near the outbreak of SARS, Bird and Swine flu.

Key quotes

Equities are likely to sell off temporarily, while long bonds could perform. Risk-off moves in FX space were limited, while Gold performed in commodity space.

Current fatality rates of the Wuhan virus are still below that of SARS (3% vs. 10% approximately) but one should, of course, consider that China has at the very least doubled its importance for the global economy as a whole since 2002/2003 when SARS broke out. 

Equities temporarily sold off post-SARS. Europe was hit the worst (20-25% drawdown), while the MSCI World drawdown was less than 10%. Hang Seng hit after both SARS and Bird-flu outbreaks.

Long bonds up (rates lower), more cuts priced but only marginally flatter curve – same pattern in EUR and USD. Bunds rose markedly post the SARS-outbreak.

Risk-off moves were limited in FX space. USD weakened ultimately while AUD and CAD performed. NOK and SEK performed flattish versus EUR.

Current moves “outpace” the moves seen around SARS and Bird flu. Gold should be underpinned, while industrial metals could suffer.