Equity strategy reduced to counting chickens and eggs
It is difficult to avoid the avian flu scare these days and foreign investors also need to be updated as regional stock markets lurch under each daily assessment of the pathogen's progress.
The earnings season has been replaced by the flu season and virus estimates rather than corporate news dominate the morning call. Trying to accurately gauge the impact on the equity market is hard but brokers have to try.
Covering all bases is good policy and investment bank ING Barings left few stones unturned in a recent strategy update. As well as voicing an understandable call for pharmaceuticals to outperform airlines, it provided a cross-section of medical opinion on the likely spread of the disease and some alarming numbers on worst-case potential fatalities - 207,000 deaths and 734,000 patients in hospital is the pandemic forecast by one medical expert.
If investors are not scared off by this point, an accompanying report takes a more measured approach, with a headcount of chickens across the region. Indonesia, the Philippines and Thailand are highlighted as having been the largest per capita chicken producers in 2002, although China's US$5 billion output is by far the largest nominal figure.
The irony that sophisticated equity strategy has been reduced to counting chickens is noted but one omission stands out. While counting your chicks before they have hatched is foolhardy, not counting your eggs at all must be an oversight.
As flu and cullings kill tens of millions of chickens, broilers and layers alike, even eggs are becoming scarce. Bakers in Thailand complain that a shortage of eggs means they cannot make cakes and China is no longer exporting eggs to Hong Kong.
It is these unpredictable ramifications that analysts now have to forecast, with substitute products and producers gaining, while others see markets disappear.
Follow the chicken chain back further to the feed and it is the soya-bean market that is affected. Prices are falling in China and as the world's largest soya-bean importer, international prices may follow.
China invariably attracts the most attention due to its track record as a super-incubator of new diseases and its size. Transparency, too, is an issue as in the space of little more than a week it has gone from reporting a clean bill of health to having one-third of the country affected by the outbreak.
Memories of how the Sars outbreak sent the region's economies into paralysis are still fresh. The key difference this time, so far at least, is that there is no proven human-to-human transmission of the avian virus.
While China recovered fast from Sars, it is worth recalling that gross domestic product growth slumped to 6.7 per cent in the second quarter last year, down from 9.9 per cent in the first.
The strength of China's subsequent rebound drove up prices for a range of commodities, from steel and iron ore to copper. As China's demand makes it the price setter on a range of commodities, any problem in the country is likely to be felt far from its shores.
Hopefully the positive side of this new level of interconnection is that international pressure will ensure governments grasp the common benefits of decisive action to avert a pandemic.
If another Sars is on the way, then perhaps ING Barings' report puts it best - all bets are off.
Bird flu takes its toll - B5
