The only thing spreading faster than the Ebola is the fear of Ebola itself, affecting stock markets and investment perspective all over the globe. Stock markets have been experiencing uncertainty and unusual trends ever since the outbreak of Ebola virus in the Western-African hemisphere, especially Liberia. Fears of a worldwide economic slowdown due to the spread of the virus helped market prices to decrease sharply and the price of oil to drop to a four-year low.
Ebola has the ability to cause panic on an international level, like SARS and swine flu in 2003 and 2009 respectively. However, economists and public health experts have learned much from the recent epidemics. A quick look at the hard science shows that there is dramatic mismatch over the facts and the commentators have exaggerated the fears. “The ultimate risk to America is very, very, very small”, says Ashish K. Jha, Professor of International Health and Health Policy Harvard School of Public Health (Walton, 2014). The effects have hampered economies globally through reduced air travel, consistent funding of the research to develop a vaccine, reduced medical assistance to the African countries, slower production processes in the region, closures of schools and increased volatility due to the fear of an outbreak of the disease.
While it is likely that the economic activity may correlate with the actual disease outbreak, the final outcome depends solely on the public response. One study, led by a U.K. based economist, predicted that there would be a 0.5% GDP loss from the disease itself, on top of an 8% loss due to the policies being developed to mitigate the spread, including quarantines and travel restrictions. Over a span of three weeks (September 23rd to October 13th), United Airlines’ shares have experienced a precipitous drop of 16%, probably due to the scare of Ebola (Rolph, 2014). Other airlines saw similar drops (Casey, 2014):
- Delta Airlines was down 14.5%
- United Continental Holdings Inc. was down 13.3%
- American Airlines Group Inc. was off by 9.9%
There has been some discussion recently about putting a complete ban on flights from the affected African states. For bearish bets, short-sellers have had a good run with airlines until most carriers got a lift from solid third-quarter results. A bearish trend was evident throughout the stock markets of various countries across the world. MSCI’s broadest index of Asia-Pacific shares outside Japan saw early losses and was down by 0.6%. Similarly, Japan’s Nikkei stock average experienced a 2.2% drop. The chief portfolio manager at Commons Asset Management, Takatoshi Itoshima, said “It’s clear that people are avoiding risks,” (Fletcher, 2014).
On 15th October 2014, the FTSE 100 closed down 181 points or 2.8% at 6,211, knocking £46bn off the value of Britain’s top companies (Fletcher, 2014). This has been its lowest level since June last year. In New York, the Dow Jones Industrial Average dropped sharply after European markets closed, slumping 420 points – 2.5% – and dropping below 16,000. The same trends made headlines in Europe:
- Germany’s Dax dropped 2.87%
- France’s CAC was down 3.63%.
Continuing trends indicated that the US market was affected by a fall in global demand, retail sales fell by 0.3%, while producer prices fell by 0.1% in the month of September (Fletcher, 2014).
Ebola has not harmed all the sectors of the economy, in fact, it has boosted some niche industries. Some of the examples are of the protective suits’ industry and the pharmaceutical industry. For investors, there have been some profit making firms that are developing vaccines for the virus. Investors used one of the most effective strategies – gauging fear. The Hazmat suit companies are soaring since the demand has increased. Due to continuing concerns over Ebola, investors have taken a back seat over riskier bonds and sought comfort in much safer bonds such as Treasuries (Damato and Zeng, 2014). As of October 23rd, shares of Lakeland Industries Inc. (LAKE) and Alpha Pro Tech Ltd. (APT) were up by 142% and 130% respectively. These companies are likely to continue to perform well.
Lakeland Industries (NASDAQ, 2014)
Drug makers focusing on Ebola treatments are also performing well; Tekmira Pharmaceuticals Corporation (TKMR) was up 125% by October 23rd (Rolph, 2014). However, some different statistics are given for the same companies elsewhere (Casey, 2014):
- Tekmira Pharmaceuticals Corporation’s shares are up 13.3% since the start of October
- Hazmat suit-makers Lakeland Industries Inc. and Alpha Pro Tech Ltd. are up 250% and 163%, respectively.
However, for the markets, if not the whole society, it is the economic losses from Ebola that matter to a greater extent than any real infectious disease transmission. Media exaggerating concerns, pharmaceutical companies gaining profits, deteriorating situation for air travel companies, world health organization mobilizing together, all adds up for the investors to benefit from the right markets.
Casey, M. (2014). For Ebola’s Market Impact, Follow the Fear, not the Virus. The Wall Street Journal. [online] Available at: http://blogs.wsj.com/moneybeat/2014/10/15/for-ebolas-market-impact-follow-the-fear-not-the-virus/ [Accessed 31 Oct. 2014].
Damato, K. and Zeng, M. (2014). Know What Junk-Bond Funds Are—and Aren’t. [online] The Wall Street Journal. Available at: http://blogs.wsj.com/totalreturn/2014/10/22/know-what-junk-bond-funds-are-and-arent/ [Accessed 3 Nov. 2014].
Fletcher, N. (2014). Fears of global slowdown spark fall on European and US stock markets. The Guardian. [online] Available at: http://www.theguardian.com/business/2014/oct/15/ebola-economic-concerns-european-us-stockmarkets [Accessed 31 Oct. 2014].