The Impact of Bird flu on the financial
markets.
Currently with Bird Flu not being regarded
as an immediate serious threat to the world, financial markets
are, to all intents and purposes ignoring it. Currently with
chicken and poultry sales reduced this sector is unlikely
to emerge from this quarter with anything other than a sense
of dread of the following quarter. This could have an impact
right from the chick raisers to end sales like the retailers
or restaurants. Companies like Kentucky Fried Chicken (KFC)
are taking bird flu very seriously. On the other hand drug
company Roche has recently received orders from many of the
world's governments for it's anti viral drug Tamiflu which
is thought may reduce the length of the bird flu infection
in an individual. The UK government has recently ordered enough
Tamiflu to treat 25% of the UK's population.
If bird flu emerges to be the next pandemic,
then the markets will take notice and the financial markets
will start to drop. The logic will go something like this.
The world is going to be reduced in population by X% therefore
company Y will sell X% less of their products. Therefore company
Y is worth less. Also they may lose X% of their workforce
and the remainder may not want to come to work for fear of
catching bird flu. Comapnies that owe them money may not pay
up because they are in severe financial difficulties and so
confidence in company Y is chipped away bit by bit.
Some companies will be very hard hit and
others will escape relatively easily. For example even if
governments do not ban air travel in the event of a pandemic,
people are going to think twice about flying, luxury goods
are often quite hard hit under these circumstances - people
do not want to make large purchases during times of uncertainty,
so real estate, cars and furniture sales are often put off
until times of more certainty.
People do not even need to be dying for this
to have an impact. If people start avoiding places where there
are large numbers of people like shops because of the fear
factor of the virus then it will have similar economic effects.
On the plus side companies that traditionally
do well in times of adversity are food retailers - everyone
needs to eat - you can't really put off buying food for more
than a week or so. Bond prices will rise as people become
more risk adverse and switch their money out of stocks. Also
gold prices usually go up at times like these as people retrench
into something that is tangible and they feel will hold it's
value as all else around stocks, property, currencies all
tumble. How log this switch will last will depend on the severity
of any outbreak. |
