Opinion | Investors betting against the science of coronavirus are playing a dangerous game

There is a clear disconnect between the literature on Covid-19 and financial markets. Investors expecting the coronavirus disease to peak and stop like Sars have another think coming

Reading Time:3 minutes

A colourised scanning electron micrograph supplied by the US National Institute of Allergy and Infectious Diseases shows a monkey kidney cell (blue) heavily infected with novel coronavirus particles (orange), which were isolated from a patient sample. Photo: Reuters

Published: 11:15pm, 19 Apr 2020Updated: 11:15pm, 19 Apr 2020

Preparing for the unexpected is part of my job. Until recently, understanding how a virus could turn into a global pandemic that would wreak havoc on the world economy was nowhere near the top of my priorities. Like most others outside the sphere of epidemiology, I failed to see recent events coming.

Perhaps we should have. After all, experts have been sounding warning sirens for years. In January 2019, a US intelligence report warned that the country “will remain vulnerable to the next flu pandemic or large-scale outbreak of a contagious disease that could lead to massive rates of death and disability, severely affect the world economy, strain international resources, and increase calls on the United States for support”.

Part of the problem is that with many other recent outbreaks – including the severe acute respiratory syndrome, Middle East respiratory syndrome, bird flu, swine flu and Ebola – medical experts raised the alarm only for a pandemic to fail to materialise. We now realise they were right to have expressed concern.

Financial markets were far too complacent about Covid-19, hooked on the monetary heroin they had depended upon since the financial crisis. This overreliance has proved costly. Highlighting just how violently markets can move, it is worth remembering that the S&P 500 hit an all-time high of 3,386.15 on February 19 – seven weeks after China alerted the World Health Organisation to several mysterious cases of pneumonia in Wuhan. Investors’ complacency has now been replaced by fear. On March 19, one month on from its peak, the S&P had sunk 29 per cent.

This shows a clear disconnect between the medical literature and financial markets. Much of the research on Covid-19 is freely available and is easy to understand. Speaking as a mathematician, mathematics underpins much of the science of the spread of an epidemic, so it did not take me long to appreciate that what financial analysts were saying was incorrect.

In epidemiology, R0, the basic reproduction number of an infectious disease, is the expected number of cases directly generated by one case in a population where all individuals are susceptible. In a simplified model, R0 depends on three factors: the probability you will infect someone if there is social contact; how many contacts you have; and the probability those contacts are susceptible to the virus because they have no immunity. If R0 is above 1, the virus will spread; the higher the value, the harder it will be to control.

Select Voice

Choose your listening speed

Get through articles 2x faster

1.25x

250 WPM

Slow

Average

Fast

00:0000:00

1.25x

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;} There is a clear disconnect between the literature on Covid-19 and financial markets. Investors expecting the coronavirus disease to peak and stop like Sars have another think coming

There is a clear disconnect between the literature on Covid-19 and financial markets. Investors expecting the coronavirus disease to peak and stop like Sars have another think coming