Summary of the report

• The spread of the COVID-19 epidemic overseas continues to accelerate; taking history as a mirror, there have been many major outbreaks in the world in the past 30 years.

The COVID-19 epidemic continues to accelerate its spread overseas, with a total of more than 6000 cases confirmed as of February 29.The epidemic situation in Asia is relatively serious, with a total of 3000 confirmed cases in South Korea, 945,388 in Japan and 388 in Iran. In Europe, the situation in Italy is still grim, with the cumulative number of confirmed cases rising to 889. In other regions, there have been a number of unknown cases of transmission in the United States, and the risk of the epidemic should not be ignored.

Taking history as a mirror, since the 1990s, there have been many outbreaks of major outbreaks caused by infectious viruses around the world.Since 1990, there have been major outbreaks of pneumonic plague in India in 1994, SARS in China in 2003, H1N1 in the United States in 2009, and Middle East Respiratory Syndrome in 2012 and 2015. After previous outbreaks, many countries around the world have been affected, and during the SARS period, many countries have joined forces for strong prevention and control.

• After previous major outbreaks, the economy of the outbreak is generally affected, and the performance of the global economy and capital markets is different.

Outbreaks generally have a direct impact on the economy of the outbreak, with varying impacts on the global economy.The law of the impact of the epidemic on the global economy is different, which is related to the spread of the epidemic, the periodic stage of the global economy, and the positioning of the countries in the epidemic area in the global industrial chain. For example, due to coinciding with the global economic upward cycle, the United States H1N1 did not have a significant impact on the global economy in 2009; because of its small economic size, South Korea's Mers had little impact on the global economy in 2015.

After previous outbreaks, safe-haven assets tend to rise, and the stock market is affected by multiple factors.After the outbreak of the epidemic, safe haven assets generally rose in the short term. On the other hand, the performance of the stock market is affected by the scope and degree of spread of the epidemic, as well as the market environment and macro background. After the outbreak of SARS in 2003, the stock market generally adjusted for fear of the spread of the epidemic; although H1N1 broke out in 2009, the stock market continued to rise in the global economic upswing.

• COVID-19 epidemic spread strongly, the scope of influence is large, the global economy is weak, the stock market valuation is expensive, the impact may not be underestimated.

Compared with previous outbreaks, the COVID-19 epidemic has a wider impact and a deeper impact on economic activities, and the outbreak is in a downward phase of the global economy.The epidemic area of COVID-19 basically includes East Asia, one of the three largest manufacturing centers in the world, and West Asia, the largest crude oil producer in the world. Due to its strong infectivity, the epidemic has a deeper impact on economic activities, such as canceling all kinds of social activities, suspending work, blocking borders, and so on. At the same time, the epidemic coincides with the continued weakness of the global economy, which is completely different from the environment in which SARS and others live.

With the global economy weak and stock market valuations at historically high levels, the impact of the COVID-19 epidemic may not be underestimated.The epidemic is highly spreading, has a profound impact on the economy, the economic volume of the affected countries is large, and the global economy itself is in a weak cycle, so it is easy to magnify the impact of the COVID-19 epidemic on the global economy. At the same time, valuations of major stock indices around the world have generally risen to record highs on the back of an earlier loose liquidity environment. The volatility of the world's major stock indices has risen as the global economic performance is weak and the outbreak is likely to trigger more uncertainty.

Report body

Overseas hot spot tracking

Hot spot tracking: a review of major global epidemics

Events: since the 1990s, there have been many major outbreaks caused by infectious viruses around the world.

Since the 1990s, there have been many major outbreaks caused by infectious viruses in the world.

Since the 1990s, there have been many major outbreaks caused by infectious viruses in the world. Major global outbreaks include pneumonic plague in India in 1994, SARS in China in 2003, bird flu in China in 2006, H1N1 in the United States in 2009, and Middle East Respiratory Syndrome in 2012 and 2015. After each outbreak, many countries around the world have been affected, and thousands of people, even tens of thousands or millions of people, have been infected.

For example, after the SARS outbreak in 2003, nearly 30 countries around the world were affected by the outbreak and more than 8000 people were infected with the virus. During the H1N1 outbreak in the United States in 2009, more than 40 countries were affected and more than 1 million people were infected.

During the outbreak of the global pandemic, except for SARS in 2003, there were no strong prevention and control efforts in many countries. After the outbreak of SARS in 2003, Chinese mainland joined forces with Hong Kong, Taiwan, and Singapore to prevent and control, including suspending primary and secondary schools, suspending all kinds of large-scale social activities, and isolating suspected cases.

In addition to SARS, during the outbreak of other global pandemics, there has not been a number of countries to join forces for strong prevention and control. On the one hand, it may be because some outbreaks are concentrated in a country or region, such as pneumonic plague in India in 1994 and Ebola in West Africa in 2014. On the other hand, it is also related to the negative response of some countries with concentrated outbreaks. For example, after the outbreak of H1N1 in 2009, the US government responded slowly and failed to take timely prevention and control measures.

The epidemic generally has a direct impact on the economy of the outbreak, and the impact on the global economy is different.

After previous major global outbreaks, the economy of the place where the outbreak occurred is generally directly affected. For example, after the outbreak of SAR in China in 2003, the growth rate of GDP in China dropped by 2% in that quarter; as a result of the direct impact of the epidemic, service industries such as transportation, accommodation and catering have seen a significant drop in demand and a sharp drop in industry output.

In 2012 and 2015, the outbreak of Mers in Saudi Arabia and South Korea also dragged down the economic development of Saudi Arabia and South Korea respectively. Among them, the growth rate of GDP in Saudi Arabia was 4.6% lower than that in 2011, while the growth rate of private consumption in South Korea dropped significantly.

The impact of the epidemic on the economy of the outbreak is affected by the local economic cycle. Take the H1N1 epidemic in the United States in 2009 as an example, although the epidemic infected nearly 100000 people and killed more than 2000 people in the United States, as the United States coincided with the recovery period after the financial crisis, and the superimposed global economy was stimulated by the backing policies of China, the European Union and other non-American economies, the United States economy was finally not greatly dragged down by the H1N1 epidemic, with only private consumption growth declining slightly in the third quarter.

Contrary to the situation in the United States, the 2015 Zika virus outbreak in Brazil coincided with the downward cycle of the domestic economy, which eventually led to a further acceleration of GDP growth in Brazil.

The impact of the epidemic on the global economy is related to the spread of the epidemic and the positioning of major epidemic areas in the global industrial chain. The Mers epidemic in 2012 and 2015 dragged down the economy of Saudi Arabia and South Korea respectively, but the impact on the global economy was not obvious.

For example, in 2012, the global economy performed very well, while in 2015, the global economy continued to decline. The two Mers outbreaks did not have a significant impact on the global economy. On the one hand, the Mers epidemic itself is not very contagious (a small number of infections) and has little impact on other countries; at the same time, it is also related to the small size of the economies of Saudi Arabia and South Korea, which are the core epidemic areas, and their position in the global industrial chain is not a consumer country.

Similar to Saudi Arabia and South Korea, the 2015 Zika and 2018 measles outbreaks in Brazil have a limited impact on the global economy due to their small economic size and resource country positioning.

The impact of the epidemic on the global economy is also related to the stage of the global economic cycle. Although China's economy is large, during the SARS outbreak in 2003, the global economy continued to improve undisturbed by the rapid economic growth of the United States and Europe.

Similar to the situation in 2003, the outbreak of swine flu in the United States, the world's largest economy, in 2009 coincided with the recovery phase of the global economy after the financial crisis. The global economy continues to rise, driven by China's massive stimulus of domestic demand and policies such as monetary easing and fiscal expansion in other economies around the world.

After the outbreak of the epidemic, safe haven assets tend to rise in the short term, and the trend of the stock market depends on multiple factors.

After major outbreaks around the world, safe-haven assets are often sought after in the short term, and the medium-term trend is still determined by the macro environment. Looking back on historical data, after major outbreaks around the world, risk aversion generally rises rapidly in the short term, 10Y US bond yields tend to fall, and gold prices rise rapidly.

Of course, the medium-term performance of 10Y Treasury yields and gold prices is still determined by the macro environment. Take the yield trend of 10Y US debt as an example. After the Mers outbreak in 2012, as the global economy was on the path of continuous improvement, 10Y US bond yield rose rapidly after experiencing a periodic decline.

Different from hedge assets, the impact of the epidemic on the stock market depends on the scope and degree of spread of the epidemic. After the outbreak of SARS in 2003, due to the wide spread of the epidemic (29 countries were affected) and the degree of impact (social activities and the production of some enterprises were suspended), the global capital market was obviously affected.

Among them, China's A-shares fell rapidly after the disclosure of epidemic information, while other major stock indexes around the world generally continued to adjust before the epidemic reached its peak. However, the spread of Ebola in West Africa in 2013 and Mers in South Korea in 2015 are not as widespread and the impact on the global economy as SARS, so the global stock market reaction is relatively muted.

The impact of the epidemic on the stock market is also related to the market environment and macro background in the same period. The impact of the H1N1 epidemic in the United States in 2009 on the stock market is a typical case. Because it coincides with the recovery period after the financial crisis, both the US economy and the global economy are in the upward channel.

At the same time, after a sharp correction during the financial crisis, US stocks and global stock markets are basically at the bottom. Under the support of improved economic climate and relatively good market environment, although the H1N1 epidemic broke out, US stocks and major stock indexes around the world showed a continuous upward trend.

The global economy is weak, the valuation is high, and the superimposed transmission is strong. The impact of this epidemic should not be underestimated.

From the perspective of the transmission and mortality of the epidemic, COVID-19 's epidemic situation is between SARS and the H1N1 epidemic in the United States. In terms of the speed of spread of the epidemic, from the discovery of the first case to the confirmation of more than 5000 cases, the COVID-19 epidemic interval of 52 days, between the United States H1N1 (31 days) and SARS (148 days) epidemic.

In terms of mortality, the fatality rate of the COVID-19 epidemic is about 2.4% (the death data is as of February 26), which is higher than the 1% of the H1N1 epidemic in the United States and lower than the 9.6% of the SARS epidemic.

Unlike SARS and H1N1 in the United States, the COVID-19 epidemic has a wider impact and a deeper impact on economic activity, and the outbreak is in a downward phase of the global economy. The epidemic area of COVID-19 basically includes East Asia, one of the three largest manufacturing centers in the world, and West Asia, the largest crude oil producer in the world. Due to its strong infectivity, COVID-19 's epidemic situation has a deeper impact on economic activities.

For example, China has chosen to postpone the resumption of work throughout the country, South Korea and Italy have cancelled all kinds of social activities, and many affected countries have cancelled flights and blocked borders by other countries. Affected by this, since the spread of the epidemic, whether in China or overseas, the economic boom has been significantly weaker than in the same period in previous years. At the same time, the epidemic coincides with a period of continued weakness in the global economy, which is completely different from the upward phase of the global economy when SARS and the US H1N1 outbreak broke out.

Before and after the COVID-19 outbreak, the valuations of the world's major stock indexes generally rose to historic highs. Although the global economy has continued to weaken since 2019, the valuations of the world's major stock indexes have risen sharply on the support of loose monetary policies by mainstream central banks.

By mid-February 2020, the Shearer valuation and dynamic valuation of the S & P 500 had risen to the historical 95% and 84% quantiles respectively; at the industry level, the valuations of public utilities, essential consumption, information technology, and optional consumer industries, with a combined weight of nearly 40%, rose to historical 100%, 97%, 88%, and 84%, respectively. Globally, the valuation of the MSCI global index has risen to the historical 84 per cent, while the MSCI developed index and the MSCI emerging index have also reached the historical 89 per cent and 85 per cent respectively.

Under the background of the weak global economy and the historically high valuations of major stock indexes, and the strong spread of the COVID-19 epidemic itself and its deep impact on economic activities, the impact of the epidemic on the global economy and markets should not be underestimated. According to historical experience, the impact of the epidemic on the global economy is related to the spread of the epidemic, the positioning of major epidemic areas in the global industrial chain and the stage of the global economic cycle.

The impact of the epidemic on the capital market depends on the spread of the epidemic, as well as the market environment and macro background in the same period. Considering the spread of the COVID-19 epidemic, the economic volume of the affected countries, the stage of the global economy, and the valuation of the capital market, the impact of the epidemic on the global economy and markets should not be underestimated.