This time last week, I’d never heard of Swine Flu and now I can’t open a paper, watch a TV show or read an Internet page without being told how I ‘must wash my hands after a handshake’ to prevent being taken out by this deadly beast.
I’m not here to talk about the medical, moral or humanitarian issues surrounding this potential pandemic – I’ll leave that to more mainstream sources (Click here to link to the World Health Organisations statement on Swine Flu).
What I want to do is consider what effect Swine Flu may have on the global economies and what traders can do to protect their accounts from any potential fallout and maybe even position their accounts to make a profit.
First lets put some context around this outbreak of Swine Flu.
- There were 3 pandemics in the 20th Century.
- ‘Spanish influenza’ in 1918 killed between 40m & 50m
- ‘Asian influenza’ in 1957 killed 2m
- ‘Hong Kong influenza’ in 1968 killed 1m
- ‘Ordinary flu’ kills about 0.5m to 1m people every year (That’s about 12,000 Brits)
- If 1918 figures are extrapolated to current populations then ‘Swine Flu’ would kill 180m to 360m worldwide
As we know, fear and greed move markets. Right now fear is the predominant emotion – just look at the volume of news focusing on the issue – this fear is causing global markets to drop.
Fear is the last thing the markets need right now but what is the likely impact? If this fear continues and if ‘Swine Flu’ does become pandemic, then global economic costs could be huge.
Which sectors will feel the pinch and where can we look to invest to protect our hard earned cash?
Businesses that rely on cross-border trade, with just-in-time supply channels will suffer. Sectors like trade, travel and retail will all be adversely affected. A reduction in travel will affect airlines, holiday companies and energy suppliers. Companies with exposure to volatile emerging markets could also be disproportionally affected. As demand decreases, so the commodity markets will suffer. Expect to see companies involved in commodities (whether that be extraction, refining, distribution or retail) also hit.
There will be sectors that benefit, such as pharmaceuticals and I’d also expect to see a renewed interest in Gold. Bond yields are also likely to rise (they just work in the opposite direction of the stock market).
Whatever happens, I’ll still be looking at the charts and following my system. But, I will be keeping in mind the bigger picture as long as the situation remains a news worthy item.
It’s amazing how differently people think – as soon I saw the news I started thinking about how this might create an opportunity to buy mexican airport operators or airlines.
hflash
Hi hflash,
thanks for your comment. As you say it is interesting how different people view, process and make decisions, based on the same data. I assume you are considering buying Mexican airport operators/airlines once the ‘panic’ is over and their prices return to pre-panic levels?
no – whilst the panic is at its height
I’m confused! Mexican airport operators have dropped in value over the last couple of days and people panic and operators cancel flights to Mexico. And your plan is to buy? It’s brave, or perhaps I’m missing the point, but if the prices drop does that not mean you lose money??
Well the swine flu is a temporary phenomenon. The likes of PAC and ASR are down 15% on the swine flu news, to me that represents a discount on the ‘normal’ stock price should correct itself with a reversion to the mean, especially for someone with a longer-term horizon.
Totally agree. So in essence you are buying into stock that is undervalued based on temporary news items. Makes sense. I think the timing of your buying is what confused me (and my 1st post didn’t help!) How is the Mexican market doing at the moment (i’m not following it). Would be great if you could let us know how your strategy is getting on!