Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

1 Big Reason Traders May STILL Be Underestimating Coronavirus Risks

By Matthew WellerMarket OverviewJan 27, 2020 11:41AM ET
www.investing.com/analysis/1-big-reason-traders-may-still-be-underestimating-coronavirus-risks-200501856
1 Big Reason Traders May STILL Be Underestimating Coronavirus Risks
By Matthew Weller   |  Jan 27, 2020 11:41AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Well, that was a brutal weekend to be sure: The tragic death of basketball legend Kobe Bryant, reports of three rocket strikes on the U.S. embassy in Baghdad, and the continued spread of coronavirus dominated the airwaves.

While each of the above events are heartbreaking in their own way, the biggest concern for traders this week will be the spread of coronavirus. Markets have seemingly woken up to the risks posed by the virus over the weekend, with major stock indices in Europe and the U.S. shedding 1-2% across the board, gold on track for its highest close since 2013 and risk sensitive currencies like the Australian and New Zealand dollars dropping about -1% against “safe havens” like the Japanese yen and Swiss franc.

Despite today’s dramatic market moves, there’s still a risk that traders are dramatically underestimating the risks posed by coronavirus.

The (Apocryphal) Invention Of Chess

In the words of U.S. physics professor Al Bartlett, “The greatest shortcoming of the human race is our inability to understand the exponential function.” In their day-to-day lives, most people are accustomed to linear functions (y=mx) in mathematical parlance), but relatively little experience with fast-growing exponential functions (y=mx).A classic example of underestimating exponential growth comes from the (likely apocryphal) story of the invention of chess. India’s emperor, enamored with the game, asked the inventor to name his reward for creating such a compelling pastime. The inventor asked for “just” one grain of rice on the first square of the chessboard, two grains on the next square, four grains on the following square and so on, with the grains of rice doubling on each of the 64 squares (y=264). The emperor, failing as many of us do to comprehend the exponential function, agreed instantly. After running the numbers, his treasurer informed him that he had just agreed to grant the inventor an incomprehensible 18 quintrillion grains of rice, equivalent to centuries of rice production.

Official Coronavirus Data Paints Grim Picture Moving Forward

Viruses spread by the same general principle: One person can infect multiple people, who can in turn infect multiple people and so on. Recent reports that this particular strain of coronavirus may be transferred during its incubation period, which lasts up to 14 days and may present no symptoms whatsoever, suggests that the outbreak is likely to get worse before it gets better. The inauspicious timing of the outbreak during the travel-heavy Chinese New Year celebration could further accelerate the spread of the disease across the country and beyond in the coming weeks.

The below table shows the confirmed number of coronavirus cases from Chinese authorities and the daily percentage growth rate in green-shaded cells. With anti-government backlash growing in China, it’s worth noting that authorities may have an incentive to downplay or underreport the spread of the disease, so these numbers may be viewed as a minimum number of actual cases. The blue-shaded cells simply take a naïve average of the daily growth rate in coronavirus cases over the last week and projects forward the number of infections over the next two weeks based on that average:

Coronavirus Cases
Coronavirus Cases

Source: Chinese National Health Commission, GAIN Capital

Please note that I sincerely hope that the spread of the disease is brought to a halt immediately and I’m by no means an epidemiologist (though some epidemiological models are even more dire). That said, if the virus continues to spread at anywhere near the same rate over the next week or two, traders are clearly underappreciating the risks to global markets. For reference, the 2003 SARS outbreak ultimately infected nearly 8,100 people, killed 800, and is estimated to have shaved 1-2% of China’s global GDP growth. At its current growth clip, coronavirus could exceed the SARS infection figures by Wednesday and more than double them by Friday.

We’ll focus on the market implications and specific trading opportunities as the week develops, but it’s clear that like the credulous Indian emperor, traders may still be underestimating coronavirus’s potential to drive massive market volatility.

1 Big Reason Traders May STILL Be Underestimating Coronavirus Risks
 

Related Articles

Paul Rejczak
Should We Buy the Dip? By Paul Rejczak - Jan 21, 2022 8

The S&P 500 broke below its early December low. Are we in a new bear market or is this still just a downward correction? The broad stock market index lost 1.10% on Thursday...

James Picerno
S&P 500 Risk Profile By James Picerno - Jan 21, 2022

The US stock market is knee-deep in another one of its periodic bouts of selling. Is this the big one or just another short-term correction? The only honest answer, as always:...

1 Big Reason Traders May STILL Be Underestimating Coronavirus Risks

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (7)
Chris Sundo
Chris Sundo Feb 02, 2020 10:23PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The odd thing that zero nobody is talking about are two: ------ 1.) When articles say "the virus is spreading" they really mean "the virus carriers are spreading, ie the chinese tourists who BYOV - bring your own virus; That's what's spreading. So there's a huge misinformation going on, and the selling is mainly short selling, ---------2.) Communist citizens appear to have a lower immune status than those of western countries and that's why the Chinese are dying at higher rates whereas there are hardly a few Westerners who died from getting too close to infected Chinese.
Robert Nathanson
Robert Nathanson Jan 27, 2020 4:30PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Yes, Coronavirus could cause a pandemic but most likely not. Your article and the viral replication rates you quote are only a part of the picture. One should remember that CDC indicates that there have been 15 million cases of influenza, 140,000 hospitalization, and 8200 deaths due to influenza in the US this year. A large portion could be prevented by immunization, but many people refuse. It is better to approach this situation calmly.
Daniel Hall
Daniel Hall Jan 27, 2020 3:30PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
fear is an easy sell
Tudor Cirstea
Tudor Cirstea Jan 27, 2020 2:25PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Great article.
Boezz Xiao
Boezz Xiao Jan 27, 2020 1:55PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Clear warning
peter neal
peter neal Jan 27, 2020 1:44PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thanks
Manoj Kumar
Manoj Kumar Jan 27, 2020 12:33PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thats a nice article.. simple and precise...
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email