The virus responsible for this outbreak of swine flu belongs to the type A, which comprises four main strains: H1N1, H1N2, H3N2 e H3N1. Most of the cases detected so far have been affected by the H1N1 type. H1N1 is the same strain that causes seasonal flu outbreaks in humans but the newly detected version contains genetic material from pigs and birds influenza. Some experts believe that we are not in the presence of a completely new virus, but rather a mutation of an H1N1 virus first isolated in 1933. Since then, the virus may have changed about 60-70% of its genetic code, but it’s unlikely to have mutated completely, which makes it potentially less lethal than otherwise.
SWINE FLU: PREVIOUS PANDEMICS AND THEIR ECONOMIC IMPLICATIONS
The swine flu has infected more than 1600 people in Mexico, of whom more than 100 have died. • It’s too early to consider it a pandemic but the market impact could be large, driven by fear more than facts.
1) THE VIRUS AND THE MEDICAL SITUATION
The virus responsible for this outbreak of swine flu belongs to the type A, which comprises four main strains: H1N1, H1N2, H3N2 e H3N1. Most of the cases detected so far have been affected by the H1N1 type. H1N1 is the same strain that causes seasonal flu outbreaks in humans but the newly detected version contains genetic material from pigs and birds influenza. Some experts believe that we are not in the presence of a completely new virus, but rather a mutation of an H1N1 virus first isolated in 1933. Since then, the virus may have changed about 60-70% of its genetic code, but it’s unlikely to have mutated completely, which makes it potentially less lethal than otherwise.
According to the Mexican Health Ministry, so far 1,614 have been infected and 103 have died. Of theses, only 20 were so far confirmed to have been caused by the new virus. Most of them were is the 25-45 age range, which generally tends to identify potential pandemic threats as opposed to normal flu episodes. Those who are infected outside Mexico have experienced only mild symptoms, and no one has died yet. If the virus mutates further and become fully transmissible human-to-human, the threat can be greater, especially if characterized by a relatively low case/fatality rate.
In fact, a virus that causes less debilitating disease and fewer fatalities is likely to infect more people. For instance, the Ebola virus that killed hundreds of people few years ago in Africa (despite being highly infectious) proved to be characterized by a not very ’successful” strategy of diffusion since it used to kill its victims too fast, preventing itself from spreading more (which is the ultimate goal of a virus). A virus able to kill 5% percent, and not 50% of those infected (like the Avian flu) would be therefore more dangerous and would dramatically resemble the 1918 Spanish flu pandemic, which killed about 50 million people. Since at that time the world population was 1.8 billion people, today a pandemic with the same case/fatality rate would cause about 150 million deaths.
ANTI-PANDEMIC PLAN: There is an international 6-level scale for the pandemic threat. Levels 1 and 2 correspond to an inter-pandemic phase, which entails low or limited risk for humans. We are currently in phase 3, which corresponds to ‘limited cases of human-to-human transmission” and triggers the pandemic alert. Level 4 is associated with an ‘evident’ increase in the human-to-human transmission, with the ascertained presence of a mutated virus able to infect human beings. Phase 5 kicks in when there is a ’significant’ increase of human-to-human transmission and 6 corresponds to a declared pandemic, with ’sustained’ pace of transmission of the virus.
VACCINATION: Since 1997, experts are working on a pre-pandemic vaccination based on the avian virus H5N1. Most likely, the millions of vaccine doses prepared against the H5N1 strain are useless, but the experience accumulated so far should allow our medical structures to prepare an effective vaccine in less than six months. Other remedies are the anti-viral medicines developed in recent years to combat threats coming from viruses such as HIV.
COMPARISON WITH PREVIOUS PANDEMICS: Pandemics appear regularly, and 40yrs have passed since the last one. The last century witnessed the outbreak of three main pandemics: (1) the Spanish flu in 1918-1919, which infected up to 40% of the world’s population and killed more than 50m people, with young adults being particularly badly affected; (2) the Asian flu in 1957 was caused by a human form of the virus H2N2, combining with a mutated strain found in ducks, and killed two million people, with the elderly being particularly vulnerable; (3) the 1968 outbreak first detected in Hong Kong, caused by a strain known as H3N2, killed up to one million people globally, with the over-65s being the most affected. During this century, the pandemic risk has been associated with two episodes: the SARS in 2003 and the avian flu, which has hit the scenes in three different waves since 2003. Let’s examine some of them for comparison.
THE SPANISH FLU: The so called Spanish flu, the most intense pandemic that have occurred to date, hit the world between 1918 and 1919 by inflecting one billion people, about 40% the world’s population at that time, and killed between 40 and 50 million (for comparison, the just finished WWI had an estimated death toll of 10 million). The given name “Spanish” comes from the fact that Spain, not being involved in the war, had a free press that could report the developments of the pandemic in their country, and for this reason when the Russian newspaper Pravda reported on the situation in Moscow, the headline was “Ispanka (The Spanish Lady) is in town”. The first town the ‘Lady’ visited was Camp Funston, Kansas – USA on 8th March 1918, and then the pandemic hit the world in 3 waves: summer 1918, autumn 1918, early 1919. Worldwide, since the second wave took only 2 months to circle the globe, it is estimated that 30% of the world’s population fell ill with influenza.
The most remarkable characteristics of this pandemic was its age distribution mortality: while general influenza claims the older and younger segments of the population, 45% of the victims of the Spanish Lady were people aged 15-35 (more than the usual 9%), and fully 50% of the mortality occurred between ages 15 and 44. What made this figure impressive is not the 2.5% of the so-called case fatality rate (deaths/infected people), but the morbidity of the disease (infected people/population) which varied between 25% and 50% across the regions, and the fact that a healthy young individual could die within 48 hours after contracting the disease. Apart from the age distribution, the Spanish flu was remarkably ‘democratic’ in its victims. First of all, there was not a noticeable sex differentiation of the victims (52% women – 48% men). Secondly, little association was found between influenza mortality and general health standards, wealth and overcrowding conditions. Crowding was not an issue because the virus was so infectious that the likelihood of the exposure to the virus of all persons living under urban conditions was just negligibly increased by an increase in the number of people living in the same dwelling. Thirdly, all in all, the incidence upon town and country was nearly equal, with the towns not suffering more than the countryside, but suffering first. The diffusion was in fact helped by the movements of troops at that time traveling through many ports simultaneously. However some studies suggest that urban areas, coastal areas and areas well served by mass communication and transport link suffered higher mortality rate than rural inland and isolated areas.
SARS: This virus which was declared a pandemic in March 2003 and the most affected countries were Singapore, Hong Kong, China and Malaysia. Other countries involved were Canada, South Africa, Sweden, France and the United States. SARS caused some 8,000 cases and close to 800 died from the virus.
THE AVIAN FLU: As we mentioned, the Avian Flu (or Bird flu) hit the world in three waves. The first wave of H5N1 (the so-called Yunnan) outbreaks occurred in late 2003 and 2004 in many Asian countries. The second wave (called Guiyang) started in China’s Qinghai Lake in May 2005 and the strain characterizing that wave is the one that has been found in parts of Europe, Africa and the Middle East. A third wave started in Oct 05, led by a strain called the “Fujian-like virus” because it was first isolated in China’s southern Fujian province in Mar 05. The strain proved to be resistant to the vaccines that China began using on a large scale from Sep 05 to protect poultry from H5N1.
The new strain had infected poultry in Hong Kong, Laos, Malaysia and Thailand, and sickened people in China and Thailand. Since its first appearance, the three strains of H5N1 virus are reported to have killed more than 209 million poultry worldwide, the UN’s Food and Agriculture Organization said in a report released in June 2007. However, despite being strongly infectious for birds, (luckily) the virus proved to be still poorly infectious in humans. According to a WHO report released on Oct ‘07, the H5N1 virus is known to have infected 256 people in 10 countries in the past three years, killing 152 of them. More than five of every 10 reported cases were fatal, implying a case fatality rate (deaths/infected people) of 50%, much higher that the 2.5% of the Spanish flu.
2) ECONOMIC IMPACT
In terms of economic impact, we have to consider the consequences of ‘a fear of a pandemic’, rather than the pandemic itself. In this case, probably the most appropriate reference point, given the early stage of this outbreak is the SARS episode. From an economic perspective, the most relevant impact of SARS was on tourism and consumption patterns, while Singapore and Hong Kong slipped into recession in 2003. According to the Asian Development Bank, the cost of SARS in terms of lost GDP in nominal terms for East and Southeast Asia was about USD 18bn or 0.6% of their 2003 GDP. According to a Reuters’ report (Swine flu: Is SARS a guide for the economic impact? By Vidya Ranganathan, Reuters, 27 April 09), SARS-affected economies experienced drops in retail sales in the order of 5-10% in early 2003. Hong Kong’s economy contracted by 2.6% and Singapore’s by 2% in the first half of 2003. Market reaction was muted possibly due to the quick policy response. Hong Kong’s government announced measures of about 1% of GDP, and Singapore implemented a rescue package and devalued its currency. Still, according to the cited Reuters’ report, Malaysia’s package was close to 2% GDP. Reuters says that ‘Hong Kong’s benchmark index lost 18% of its value between Dec 02 and Apr 03, bottoming at a 4-year low’. Once again, the greatest risk – in this preliminary stage of the threat – is now run by airline companies and travel-related industries. Additionally, as long as uncertainty persists, risk aversion may also rise, with implications for equities and (conversely) bonds.
If the current situation develops into a proper pandemic, the cost of it could be enormous. There were no official statistics able to estimate the economic impact of the Spanish flu worldwide, especially because the pandemic overlapped with WWI. However, the influenza severely disrupted commercial activities and social life, caused staff problems for businesses, schools, hospitals, chemist and post offices, bus and train services, triggered the closure of cinemas, churches, music halls, theatres, Sunday schools. Particular concern was voiced over the impact of absenteeism on war related industries such as mining and munitions, but all service employers and institutions were affected. A remarkable effect was caused to insurance companies, which had to pay very high premia related to the quoted disruptions. It is worth noticing that quarantine-like remedies were generally not applied, because when adopted, proved to be unsuccessful. A study recently published by the World Bank shows that today a Spanish flu-like pandemic may cost as much as USD 2tn. However, there are studies that prove that global economic losses could run to USD 4.4tn in the worst-case scenario, the equivalent of wiping out Japan’s annual GDP.
What might happen to a country such as the UK if a pandemic reaches its shores? A preliminary contingency plan organized for planning purposes by the UK Govt for the first wave of the Avian flu in 2005 assumed an infection rate of 25% and a case/fatality rate of 0.37%, around 7 times lower than the Spanish flu and 140 times lower than the observed figure of 51% for the Avian flu. Even under these over-optimistic assumptions, the 60 million UK population would experience 14.5 million people infected, 53,700 deaths, 79,600 hospitalisations, 2.9 million outpatient visits in a single 12-week wave. In terms of economic costs, unlike the Spanish flu, also children and adults are expected to be at the greatest risk, which will have a disproportionate knock-on effect on services. Moreover, according to a report from Nottingham University based on the “middle” government contingency estimate of 14.5 million people becoming infected, GDP would decline by 8%, while 3.3% of total employment (941,000 jobs) would be lost because of companies’ bankruptcies.
Some Useful Links
World Bank:
http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20978927~menuPK:34472~pagePK:34370~piPK:34424~theSitePK:4607,00.html
IMF:
http://www.imf.org/external/pubs/ft/afp/2006/eng/022806.pdf
Asian Development Bank:
http://www.adb.org/Documents/EDRC/Policy_Briefs/PB042.pdf
FAO:
http://www.fao.org/ag/againfo/subjects/en/health/diseases-cards/cd/documents/Eco
nomic-and-social-impacts-of-avian-influenza-Geneva.pdf
Lowy Institute:
http://www.lowyinstitute.org/Publication.asp?pid=345
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Naturally, when stories such as the current swine flu hit the newswires, a lot of misinformation is disseminated. Unfortunately, the 24/7 news establishment doesn’t help the situation. For some, it creates a sense of panic and for others, who tend to shrug off cable and network news’ sensationalism, a sense of apathy. Both, of course, are dangerous. I thought I would take this time to “clear the air” and ask an epidemiologist contact from the Imperial College in London to explain to me her general thoughts and concerns on the outbreak and why we should not immediately write this off as another sensationalist story.
The Unknown
What makes this strain of influenza and this particular outbreak cause for concern is the unknown. Health officials, at this point, do not know how pathogenic this strain of the influenza virus is. In other words, there is little clarity around how serious the illness is, among the people who become infected. In the early stages of an epidemic, reported mortality rates (the number of deaths divided by the number of persons infected) are often inflated, because health officials only know about the most serious cases. As of this writing, Mexico has reported 149 deaths and approximately 1600 cases. My contact says that while this mortality rate seems high, it is hard to say whether this strain is extremely deadly, or whether health systems in Mexico and the United States are identifying those with the most serious infections. However, she does have concerns given that all of the deaths reported in Mexico are among otherwise healthy adults. Generally speaking, the majority of influenza-related deaths occur among those with compromised immune systems, such as cancer patients, those whose immune systems are undeveloped, such as young children, and those whose immune function has declined, such as the elderly. So, the fact that not a single death thus far has been among anyone under age three or over age 60 is a red flag.
Spread and Containment
While influenza viruses infect many animals, including but not limited to birds, pigs and horses, the probability of any particular strain to become pandemic depends greatly on its ability to be effectively transmitted between humans. Again, until health officials are able to gather more information on who may have been infected but only developed a mild illness, it is hard to say just how effectively this H1N1 strain is transmitted. However, there has been documented human-to-human transmission. With cases reported in Mexico, the USA, Canada, Scotland and Spain, the cat is out of the bag – this has the potential to spread quickly around the world. Containment is probably not a viable control measure.
In addition, this particular strain of H1N1 virus is a mixture of four different influenza strains (1 avian, 1 swine, 2 human), the combination of which has never been documented among humans. In other words, the entire human population can be considered susceptible to infection.
Quick Note on Tamilfu and Relenza
Laboratory data show that this form of influenza is susceptible to Tamiflu (oseltamivir) and Relenza (zanamivir). However, influenza viruses mutate quickly and it is possible that this virus could develop resistance to either or both of these antiviral medications, especially if the medications are overused or not used properly (i.e., not finishing the fully prescribed amount). A word of caution – antivirals are most effective when taken within 48 hours of exposure and are effective in reducing the seriousness of the infection. They don’t cure influenza.
Swine Flu’s Market Implications
We see this as a very volatile story and one that will likely spread in its impact on the global markets. As seen today, there are highly speculative plays in drug-makers, airlines, and consumer discretionary stocks and indices. Today saw major moves in airlines like FAA (Claymore/NYSE Airline Index Fund) down 10.5%, consumer stocks like CCL (down 13%), RCL (down 16%), and drug companies like GSK (up 7%). We see these trades as highly volatile and “chasing the news.” While shorting airlines or buying vaccination makers have some merit, we are cautious to jump into such pure speculation trades. These trades seem highly likely to overshoot as traders uses these stocks as the new fast money vehicles.
What does seem clear is Mexico’s (EWW-iShares MSCI Mexico Index Fund) instability and vulnerability to this crisis. As a country already “on the brink”, we see this situation as disastrous for Mexico. While the economic fallout will obviously depend on the virility of the Swine Flu, we see this as the potential “knock-out” punch to Mexico’s growing list of problems. Using the SARS epidemic as a proxy, an estimated .8% was shaved off of China’s GDP in 2004. That was during a relatively healthy time for the global economy and a year in which China’s (FXI-iShares FTSE/Xinhua China 25) economy grew by almost 10%. In 2009, Mexico is suffering contagion from the global economic slowdown (the Mexican government previously estimated -2.8% GDP growth in 2009), a sharp decline in remittance payments, and a violent and destructive drug war. Early estimates have this outbreak costing Mexican companies $85 million a day in lost revenue, a figure likely to increase. The Mexican Central Bank will have its hands full defending the Peso (FXM- Currency Shares Mexican Peso Trust). There are early reports that Mexico will tap its $47 billion credit line from the IMF.
At ETFDesk believes the following funds will continue to have downside relating to this crisis:
FXM- Currency Shares Mexican Peso Trust
EWW- MSCI Mexico Index Fund
FAA – Claymore/NYSE Airline Index Fund
ILF- iShares S&P Latin American 40 Index
FXI-iShares FTSE/Xinhua China 25
What is swine flu?
Swine Influenza (swine flu) is a respiratory disease of pigs caused by type A influenza viruses that causes regular outbreaks in pigs.
What are the signs and symptoms of swine flu in people?
The symptoms of swine flu in people are similar to the symptoms of regular human flu and include fever, cough, sore throat, body aches, headache, chills and fatigue. Some people have reported diarrhea and vomiting associated withswine flu. Severe illness (pneumonia and respiratory failure) and deaths have been reported with swine flu infection in people. Like seasonal flu, swine flu may cause a worsening of underlying chronic medical conditions.
How does swine flu spread?
Flu viruses are spread mainly from person to person through coughing or sneezing. Sometimes people may become infected by touching something with flu viruses on it and then touching their mouth, nose or eyes.
How can someone with the flu infect someone else?
Infected people may be able to infect others beginning one day before symptoms develop and up to seven or more days after becoming sick. That means that you may be able to pass on the flu to someone else before you know you are sick, as well as while you are sick.
How long can an infected person spread swine flu to others?
People with swine influenza virus infection should be considered potentially contagious as long as they are symptomatic, possibly up to seven days following illness onset. Children, especially younger children, might potentially be contagious for longer periods.
What can I do to protect myself from getting sick?
There is no vaccine available right now to protect against swine flu. There are everyday actions that can help prevent the spread of germs that cause respiratory illnesses like influenza. Take these everyday steps to protect your health:
• Cover your nose and mouth with a tissue when you cough or sneeze. Throw the tissue in the trash after you use it.
• Wash your hands often with soap and water, especially after you cough or sneeze. Alcohol-based hand cleaners are also effective.
• Avoid touching your eyes, nose or mouth. Germs spread this way.
• Try to avoid close contact with sick people.
• If you get sick with influenza, CDC recommends that you stay home from work or school and limit contact with others to keep from infecting them. Try to stay in good general health. Get plenty of sleep, be physically active, manage your stress, drink plenty of fluids, and eat nutritious food. Try not touch surfaces that may be contaminated with the flu virus. Avoid close contact with people who are sick.
What surfaces are most likely to be sources of contamination?
Germs can be spread when a person touches something that is contaminated with germs and then touches his or her eyes, nose, or mouth. Droplets from a cough or sneeze of an infected person move through the air. Germs can be spread when a person touches respiratory droplets from another person on a surface like a desk and then touches their own eyes, mouth or nose before washing their hands.
How long can viruses live outside the body?
We know that some viruses and bacteria can live two hours or longer on surfaces like cafeteria tables, doorknobs, and desks. Frequent hand washing will help you reduce the chance of getting contamination from these common surfaces.
Are there medicines to treat swine flu?
Yes. CDC recommends the use of oseltamivir (tamiflu) or zanamivir (relenza) for the treatment and/or prevention of infection with these swine influenza viruses. Antiviral drugs are prescription medicines (pills, liquid or an inhaler) that fight against the flu by keeping flu viruses from reproducing in your body. If you get sick, antiviral drugs can make your illness milder and make you feel better faster. They may also prevent serious flu complications. For treatment, antiviral drugs work best if started soon after getting sick (within two days of symptoms).
If I am traveling, should I carry Tamiflu?
Consult with your medical provider. Consideration should be given to carrying Tamiflu, especially to areas where access to healthcare may be limited. Tamiflu, which can reduce symptoms if started within two days of onset, might be considered for patients who have:
• underlying chronic medical conditions such as heartdisease, diabetes, asthma, or a compromised immune system;
• had flu like symptoms for less than 48 hours.
Should travelers carry antibiotics?
Antibiotics are not effective against a flu virus. In some cases with severe influenza, antibiotics are used to treat complications of the flu such as bacterial pneumonia. But the selection of which antibiotics to use would require expert medical advice. A traveler who develops significant respiratory illness should seek medical care rather than self-treatment with oral antibiotics.
What should I do if I get sick?
If you become ill with influenza-like symptoms (e.g. fever, body aches, runny nose, sore throat, nausea, or vomiting or diarrhea), contact your health care provider, who can determine if influenza testing or treatment is needed. Stay home and avoid contact with other people as much as possible to keep from spreading your illness to others. Employees with significant respiratory illness or fever should not go to work. Notify your manager of the illness as well as your medical provider.
In children, emergency warning signs that need urgent medical attention include:
• Fast breathing or trouble breathing
• Bluish skin color • Not drinking enough fluids
• Not waking up or not interacting
• Being so irritable that the child does not want to be held
• Flu-like symptoms improve but then return with fever and worse cough
• Fever with a rash
In adults, emergency warning signs that need urgent medical attention include:
• Difficulty breathing or shortness of breath
• Pain or pressure in the chest or abdomen
• Sudden dizziness
• Confusion
• Severe or persistent vomiting
Should I travel to Mexico or other affected areas?
Neither the U.S. Center for Disease Control or the World Health Organization has issued travel health advisories. However, it is recommended that people postpone travel to affected areas at this time.
What is the risk of catching swine flu if I travel to or live in Mexico or other affected areas?
The risk is unknown but probably low. The disease is spread via respiratory secretions so good personal hygiene is important to reducing the risk.
What is the risk of contracting swine flu from exposure to travelers from an affected area?
Visitors who feel well should pose very little exposure risk. Swine flu in Mexico has shown human-to-human transmission. Visitors who feel ill or have a fever should not come to work to avoid the risk of spreading influenza or another viral illness and should seek medical attention.
Where do I get additional information?
http://www.cdc.gov
http://www.who.int/en
http://www.dhhs.gov/nvpo/pandemics/
http://www.cdc.gov/swineflu/swineflu_you.htm
SOURCE:
In recent years, there have been a large number of estimates of the amount of economic damage that could result from a serious global influenza pandemic (see, for example, “Pandemic Economics: The 1918 Influenza and its Modern Day Implications” by Thomas Garrett, or “A Potential Influenza Pandemic: Possible Macroeconomic Effects and Policy Issues” by the U.S. Congressional Budget Office).
All of them agree that the impact on a normally functioning global economy could be quite serious – e.g., a reduction in global GDP of more than 2.5%. However, that is already happening, even in the absence of an influenza pandemic. The real question is whether a pandemic would make things much worse. Our guess is that while it would worsen the situation somewhat in the short term, it might actually help it in medium term. This view rests on the key assumption that a flu pandemic might move the world back towards our cooperative scenario, and off the track towards increased conflict that we seem to be on today.
In terms of asset class valuations, our previous analysis was that the primary impact of an influenza pandemic would be a sharp rise in uncertainty, and an associated increase in demand for appropriate hedges, such as short term government securities and gold. Differential demand for different currencies could be driven by perceptions that one or more areas were coping significantly better or worse with the flu outbreak.
The reduced economic output associated with a flu pandemic would obviously be bad for equities, as well as commodities, assuming that the fall in demand for them would be much greater than any offsetting fall in supply. The impact on commercial property would depend on the severity of the influenza outbreak, with the more severe scenarios associated with lower valuations for commercial property, due to reduced demand.
However, as noted with respect to the economic impact of pandemic flu, these negative asset allocation effects have already occurred due to the financial panic of 2008. So rather than a substantial effect, at this point we estimate that the most likely result of the Mexican swine flu (assuming it doesn’t become much worse) is a damping of the (quite possibly premature) rally in global equity markets, and some further upward pressure on gold and short-term government security prices.