Don’t Panic; Markets Get the Flu as Well

by Inya Ivkovic, MA

So, as if we haven’t been hit enough with bad news in the past few months and as if we needed another influenza pandemic. Nevertheless, we got hit with an outbreak of swine flu — and what is the most frightening are the unknowns. So far, over 150 people have allegedly died of swine influenza in Mexico, while milder cases have been reported in the U.S., Canada and Spain. Travel advisories are already hitting the fan, shattering whatever little peace capital markets have managed to carve for themselves since the global economic crisis struck more than a year ago.

The problems are the unknowns and the fact that markets are known for being incapable of digesting such variables. The worry is: how many people will die? How will the World Health Organization  (WHO) contain and manage the most unstable among viruses — the corona virus. How long will the disease need to run its course? What if it becomes airborne and containment becomes impossible?

Reading newspapers and watching TV probably is freaking you out, scaring you about the prospect of leaving your own home in the morning, let alone traveling to Mexico. Memories of SARS are far too strong to be ignored by our collective psyche.

Yet, there are a few things any investor should always remember, regardless of the economic environment and regardless of any other indirect threats, which is that there is some degree of certainty that can be applied to capital markets. First, setbacks are typically temporary. Markets are amazingly adaptable beasts. And, second, trading driven by emotions never ends well. Don’t sell just because you’re afraid the sky is falling. Sell if you determine there is no value in holding onto something.

Even before the swine flu migrated north, the stock market could have been looking for an excuse to throw us a correction ball. The declines around the globe due to this new health scare were not panicked selloffs, but rather corrections, in my view. And for those still sitting on their cash, these latest declines might represent some buying opportunities.

A bit of history — at the height of SARS scare in 2003, the novelty of the threat sent stock markets, particularly in global hotspots such as Canada and Hong Kong, into free fall. From January to March, as the number of probable SARS cases rose, everyone was dumping stocks, and not just airline stocks.

Incidentally, those same stock markets didn’t wait for the WHO to announce an all-clear. Quite the contrary, as the number of cases peaked, stocks had had enough and embarked on an aggressive uptrend. Quite possibly, the same pattern will have applied to the swine flu. And, in the meantime, consider health stocks manufacturing flu vaccines. They are soaring, as governments around the world are trying to secure their vaccine stockpiles.