Quite apart from the human toll, a swine-flu outbreak could wreak havoc on another, already weakened patient: the global economy.
From this perspective, it is fear, rather than the disease itself, that could have the biggest impact. In such situations, individuals think twice about venturing outdoors and governments impose restrictions. When SARS hit Toronto in 2003, for example, for every person diagnosed with the disease, another 60 were quarantined, according to BMO Capital Markets.
Travel and leisure industries are obvious potential casualties. Airlines have been cutting capacity already to protect ticket prices from falling demand. An exogenous shock in the form of flu could overwhelm this strategy -- and perhaps fuel calls for a government bailout. Of European airlines, British Airways looks exposed, given 30% of its routes cross the Atlantic.
Investors positioning for the fallout might naturally head for pharmaceutical and defensive sectors. Pharma stocks gained strongly Monday. However, the sector won't necessarily prove a gold mine, since governments stockpiled antiviral drugs after 2005's avian-flu scare. The U.K., for example, has enough antiviral medication stockpiled to treat half the population for flu symptoms. A vaccine remains at least four months away, according to the World Health Organization.
Traditional defensives also aren't clear winners. Utilities, for example, are already being hurt by falling industrial demand for electricity. Further disruption wouldn't help.
If the swine-flu threat kept many people at home, online-service operators such as Netflix and Amazon.com might be expected to benefit. Against that, however, it is unclear how robust the logistics networks those companies depend on would be in such a scenario: Why would mailmen venture out to work if everyone else was housebound?
Unlike the SARS or avian-flu scares, swine flu has emerged during severe economic stress. Threats to public safety make good cover for stealth protectionism at a time of rising unemployment. World trade already faces its fastest decline since World War II. Further barriers to globalization could sharpen this even more. Export-focused emerging economies could suffer -- bad news for industrial-sector and commodities investors looking toward China for salvation. The SARS outbreak is estimated to have cost 1% of China's gross domestic product.
The swine-flu threat may fade quickly. But it adds one more layer of complexity at an already-uncertain time. In the recent market rally, small- and midcapitalization stocks have performed better than large-caps. If swine flu causes fear to displace greed once again, blue chips ought to fare better. Meanwhile, should this prove to be more than a temporary scare, policy makers who have pulled out all the stops already to encourage risk-taking will be back to square one.
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