The Velocity of Risk Goes Viral in Financial Markets

(Bloomberg) --

Paranoia about the coronavirus is spreading rapidly around the world, and the reaction in financial markets has been swift. Principal Global Investors strategist Seema Shah joined the “What Goes Up” podcast to discuss how the “velocity of risk” is much faster now than it was during the outbreak of a similar virus, severe acute respiratory syndrome or SARS, in 2003.

Some highlights of the conversation:
“We point to three different areas where you would expect that velocity of risk to be quicker in this kind of instance. And the first thing is asset valuations. They are a lot more expensive than, certainly, what we saw in the 2003 episode, which means that as we came in to 2020, risk assets were already very vulnerable to any kind of shift in global sentiment, which is exactly what we’re seeing today. So you could see sharper pullbacks in the market. “

“And the second, which to me is probably the most interesting, is the social media impact. So rewind to 2003, you would see about 100,000 tweets per day. Today you see that amount in about one single minute. So that transitioning of fear and knowledge is so much faster, and seeing that transition to portfolios quickly. And the third thing, probably most important, is the global supply chain. It’s a lot more complex, it’s a lot more intricate. So even companies that don’t necessarily come across like they have a direct exposure to china, somewhere along the way, they have exposure.”

Also joining the podcast is Bloomberg Opinion’s health-care columnist Max Nisen, who discusses how the clinical trial process and the profit incentives for drugmakers mean the quick development of a coronavirus vaccine is unlikely.



 

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