We pay particular attention to embedded beliefs in financial markets and assess risks and opportunities in this context. We look to identify how new information—or the changing interpretation of existing information—may influence asset prices, along with the views and behaviors of other market participants.
This is what we know about the coronavirus:
According to Farr’s Law, formulated in the 1800s by British epidemiologist Dr. William Farr, epidemics follow a pattern of sharp increase, a peak, and then a decline to a baseline. China’s experience with the novel coronavirus resembles a somewhat flattened bell curve and confirms this pattern.
China’s extraordinary measures have succeeded in halting the spread of the virus. Last week, no new local infections were reported for the first time since the outbreak began three months ago. China is lifting restrictions on movement in most areas of Hubei province. Wuhan will lift controls for healthy people next month.
China has sent expert teams and medical supplies to Iran, Italy, and Spain—the countries worst affected by the pandemic. In Italy, confirmed new cases have started to drop, a month after the country went into lockdown.
Singapore, Taiwan, Hong Kong and South Korea have demonstrated that, with furious efforts, the contagion can be brought to heel. More extreme preventative measures put in place by governments in other countries will lead to a decline in new cases overtime as well.
The World Health Organization said on March 24 the US risks becoming the epicenter of the global outbreak. Cases in America are spiking because testing capacity is surging after a tragically late start. That is a good thing. All fifty states now have cases.
According to analysis by scientists at the Massachusetts Institute of Technology, most coronavirus transmissions have occurred in regions that had temperatures between 3 and 17 °C. In contrast, countries with mean temperatures above 18 °C have reported fewer than 6 percent of global cases so far. This temperature dependency is clear within America, as Southern states, like Arizona, Florida and Texas, have seen slower outbreak growth compared with states like Washington, New York and Colorado. The corollary is warmer weather starting in May should slow the spread of coronavirus infections in most of Europe and North America.
Coronaviruses, much like influenza, tend to be winter viruses because the thin layers of liquid that coat our lungs and airways become even thinner in cold and dry air, and the hairs that rest in those layers struggle to evict viruses and other foreign particles. In the heat and humidity of summer, both trends reverse improving our immune response, thus respiratory viruses struggle to get a foothold.
Epidemiologist Neil Ferguson, who created the highly cited Imperial College coronavirus model, projected 2.2 million deaths in America and 500,000 in the UK from Covid-19. He has now drastically downgraded his estimates to no more than 20,000 deaths in the UK from the virus itself or from its agitation of other ailments.
Ferguson’s new estimates of the virus transmissibility have increased, which implies many more people have already gotten it than we realize—which, in turn, implies that it is “less dangerous.” He went from saying 18 months of quarantine is necessary to flatten the curve to now saying that the epidemic in the UK will peak and subside within two to three weeks.
The first clinical trials for a vaccine are already under way just two months after sequencing the virus’s genes for the first time, “It’s overwhelmingly the world record,” Dr. Anthony Fauci said. “There’s nothing in the virology that suggests we won’t get a vaccine in 12 to 18 months,” said Larry Brilliant, the epidemiologist who helped eradicate smallpox.
In China, work is returning to normalcy. The Trivium National Business Activity Index shows the economy operating at 74 percent of pre-crisis levels. Local governments have been urged to eliminate unnecessary virus control measures. “Let more workers get back to work and make money as soon as possible,” said Premier Li Keqiang.
Looking ahead, deciphering the signal from the noise about the novel coronavirus, we expect both new information and the changing interpretation of existing information to inflect positively and support a continuation of the risk rally.