What History Tells Investors About The Coronavirus

What History Tells Investors About The Coronavirus

A look back at the SARS outbreak of 2003 offers useful perspective on current fears about the spread of COVID-19.

We suspect the market will follow a similar pattern and will recover rapidly when there is evidence that the number of new cases has peaked.
Andrew Graham

On 30th January 2020 The World Health Organisation (WHO) declared1 the new coronavirus a Public Health Emergency of International Concern (PHEIC). This effectively triggers a higher profile reaction from the WHO, involving higher cooperation and the provision of technical support2, not only to China but also to other countries that may lack the infrastructure to deal with a spreading outbreak. For laypeople, there is now a new official name: COVID-19.

As of 14th February, China has announced that 63,851 people have contracted the virus and 1,380 have died.

SARS History – chart & timeline

History offers the best guide for us in terms of how the stock market may perform against the backdrop of the ongoing coronavirus (2019-nCoV) outbreak. The most obvious reference point is the SARS (Severe Acute Respiratory Syndrome) outbreak of 2003. From its discovery in February 2003, the SARS outbreak lasted approximately six months as the disease spread to more than two dozen countries in North America, South America, Europe, and Asia before it was stopped in July 2003.

Below is a chart of the MSCI AC Asia ex Japan spanning the period immediately before and after the outbreak. Firstly, it is important to note that it was a very different world back then: China is 16.3% of world GDP today versus 4.3% in 2003 (Source: IMF); and the SARS outbreak occurred during a period of very weak market sentiment, while the coronavirus came in previously positive market environment.

However, there are some similarities in terms of the disease: we can tentatively say that the reproduction number3 of the virus is similar to SARS, its incubation period appears to be a little longer and the mortality rate appears to be broadly similar. Additionally, the Chinese authorities reported the coronavirus very quickly (with SARS it took them almost 3 months) and have responded more aggressively in terms of its containment strategy. It is therefore hoped that the time to halting its expansion will be similar to SARS (i.e. around 4 months from the date when the WHO announced a global emergency).

Asian stock markets only became aware of SARS in early / mid-March 2003 when reports of the illness began to emerge, with the WHO formally issuing a global alert on 12th March 2003. As you can see in the chart below, the market bottomed shortly thereafter.

Stock markets are discounting mechanisms and respond swiftly to bad news. By the time of the WHO confirmation, markets were already partially pricing it in. The Asian markets remained volatile within approximately a 10% range and began to recover as data revealed that the number of new SARS cases appeared to be peaking (the peak turned out to be the 23rd April). A full-blown rally was underway by July when the US CDC (Center for Disease Control) lifted its travel alert for China, with the WHO declared global containment a few days later.

Source: MSCI. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

We suspect the market will follow a similar pattern and will recover rapidly when there is evidence that the number of new cases has peaked. For SARS approximately 6 weeks elapsed from the initial global alert from the WHO and the emergence of enough data to encourage investors that the worst was past. Investors will be watching closely for signs of this.

Since the coronavirus hit the headlines, MSCI AC Asia ex Japan declined by 7.5% from its January 2020 highs, but at the time of writing has recouped around one third of this; the Chinese A share markets, which were closed for an extended Lunar New Year holiday, re-opened today and caught up with other regional indices, closing sharply lower on their first day of trading (SSE Composite -9.95% and the China Shenzhen SE A Share Index -6.61%) but made meaningful recoveries since then (SSE recouping 40% of losses and Shenzhen 75%).

Valuations today are higher than in 2003: MSCI AC Asia ex Japan FY1 price/earnings ratio is 15x versus 11.6x at end February 2003 and the FY1 price/book ratio is 1.56x versus 1.23x. It is not obvious to us that this valuation gap will be completely closed during this ‘risk-off’ phase as interest rates are lower today and governments are more primed today to respond to market volatility than in 2003.

Additionally, prior to the outbreak there was accumulating evidence that the global cycle, backed by supportive policy action, was beginning to improve. If the market does move to fresh lows, we expect it will only hold those levels briefly and rebound sharply on the first indications that the number of new cases of infection has peaked.

SARS Timeline
  • November 16: The first case of atypical pneumonia is reported in the Guangdong province in southern China
  • Feb. 26, 2003 -- First cases of unusual pneumonia reported in Hanoi, Vietnam.
  • Feb 28, 2003 -- World Health Organization officer Carlo Urbani, MD, examines an American businessman with an unknown form of pneumonia in a French hospital in Hanoi, Vietnam.
  • March 10, 2003 -- Urbani reports an unusual outbreak of the illness, which he calls sudden acute respiratory syndrome or SARS, to the main office of the WHO. He notes that the disease has infected an usually high number of healthcare workers (22) at the hospital.
  • March 11, 2003 -- A similar outbreak of a mysterious respiratory disease is reported among healthcare workers in Hong Kong.
  • March 12: The World Health Organization (WHO) issues a global alert for a severe form of pneumonia of unknown origin in persons from China, Vietnam, and Hong Kong.
  • March 14: CDC activated its Emergency Operations Center (EOC).
  • March 15: CDC issues first health alert and hosts media telebriefing about an atypical pneumonia that has been named Severe Acute Respiratory Syndrome (SARS). CDC issues interim guidelines for state and local health departments on SARS.
  • CDC issues a “Health Alert Notice” for travelers to the United States from Hong Kong, Guangdong Province (China).
  • March 20: CDC issues infection control precautions for aerosol-generating procedures on patients who are suspected of having SARS.
  • March 22: CDC issues interim laboratory biosafety guidelines for handling and processing specimens associated with SARS.
  • March 24: CDC laboratory analysis suggests a new coronavirus may be the cause of SARS. In the United States, 39 suspect cases (to date) had been identified. Of those cases, 32 of 39 had traveled to countries were SARS was reported.
  • March 27: CDC issues interim domestic guidelines for management of exposures to SARS for healthcare and other institutional settings.
  • March 28: The SARs outbreak is more widespread. CDC begins utilizing pandemic planning for SARS.
  • March 29: CDC extended its travel advisory for SARS to include all of mainland China and added Singapore. CDC quarantine staff began meeting planes, cargo ships and cruise ships coming either directly or indirectly to the United States from China, Singapore and Vietnam and also begins distributing health alert cards to travelers.
  • April 4: The number of suspected U.S. SARS cases was 115; reported from 29 states. There were no deaths among these suspect cases of SARS in the United States.
  • April 5: CDC establishes community outreach team to address stigmatization associated with SARS.
  • April 10: CDC issued specific guidance for students exposed to SARS.
  • April 14: CDC publishes a sequence of the virus believed to be responsible for the global epidemic of SARS. Identifying the genetic sequence of a new virus is important to treatment and prevention efforts. The results came just 12 days after a team of scientists and technicians began working around the clock to grow cells taken from the throat culture of a SARS patient.
  • April 22: CDC issues a health alert for travelers to Toronto, Ontario (Canada)
  • May 6: In the United States, no new probable cases were reported in the last 24 hours, and there was no evidence of ongoing transmission beyond the initial case reports in travelers for more than 20 days. The containment in the United States has been successful.
  • May 20: CDC lifted the travel alert on Toronto because more than 30 days (or three SARS incubation periods) had elapsed since the date of onset of symptoms for the last reported case.
  • May 23: CDC reinstated travel alert for Toronto because on May 22, Canadian health officials reported a cluster of five new probable SARS cases.
  • June 4: CDC removed the travel alert for Singapore and downgraded the traveler notification for Hong Kong from a travel advisory to a travel alert.
  • July 3: CDC removed the travel alert for mainland China.
  • July 5: WHO announced that the global SARS outbreak was contained.
  • July 10: CDC removed the travel alert for Hong Kong and Toronto.
  • July 15: CDC removed the travel alert for Taiwan.
  • July 17: CDC updated the SARS case definition which reduced the number of U.S. cases by half. The change results from excluding cases in which blood specimens that were collected more than 21 days after the onset of illness test negative.
  • December 31: Globally, WHO received reports of SARS from 29 countries and regions; 8,096 persons with probable SARS resulting in 774 deaths. In the United States, eight SARS infections were documented by laboratory testing and an additional 19 probable SARS infections were reported.

Meanwhile, bond funds saw significant inflows in the last week, as investors are beginning to bet that the peak of the outbreak is near and concerns over the negative impact on the world economy are outweighed by the expectation of big stimulus from Beijing and other capitals, as central banks feel obliged to be proactive, to compensate for a soft first quarter of economic activity. The buying has been fairly widely spread, boosting Greek bonds, as proxies for a renewed appetite for risk assets.


1 https://www.who.int/news-room/detail/30-01-2020-statement-on-the-second-meeting-of-the-international-health-regulations-(2005)-emergency-committee-regarding-the-outbreak-of-novel-coronavirus-(2019-ncov)

2 https://www.who.int/emergencies/diseases/novel-coronavirus-2019/technical-guidance

3 A statistic calculated by epidemiologists which measures the number of people that one person can infect


China A-shares are the stock shares of mainland China-based companies that trade on the two Chinese stock exchanges, the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE).

Gross Domestic Product ("GDP") is an economic statistic which measures the market value of all final goods and services produced within a country in a given period of time.

The International Monetary Fund (IMF) is an international organization of various member countries, established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements.

Morgan Stanley (MS) is an American multinational financial services corporation headquartered in the Morgan Stanley Building, Midtown Manhattan, New York City.

The MSCI Asia ex Japan Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of Asia, excluding Japan.

The price-to-book (P/B) ratio is a stock's price divided by the stock’s per share book value.

The price-to-earnings (P/E) ratio is a stock's price divided by its earnings per share

The Shenzhen 300 Index is a capitalization-weighted index that tracks the daily price performance of the 300 most representative class A share stocks listed on the Shanghai or Shenzhen Stock Exchanges.

The Shanghai SE Composite is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.


Important Information


All investments involve risk, including possible loss of principal.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested. 

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Past performance is no guarantee of future results.  Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).

This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc.  Unless otherwise noted the “$” (dollar sign) represents U.S. Dollars.

This material is approved for distribution in those countries and to those recipients listed below. Note: this material may not be available in all regions listed.

All investors and eligible counterparties in Europe, the UK, Switzerland:

In Europe (excluding UK and Switzerland), this financial promotion is issued by Legg Mason Investments (Ireland) Limited, registered office 6th Floor, Building Three, Number One Ballsbridge, 126 Pembroke Road, Ballsbridge, Dublin 4, D04 EP27. Registered in Ireland, Company No. 271887. Authorised and regulated by the Central Bank of Ireland.

All Qualified Investors in Switzerland:
In Switzerland, this financial promotion is issued by Legg Mason Investments (Switzerland) GmbH. Investors in Switzerland: The representative in Switzerland is FIRST INDEPENDENT FUND SERVICES LTD., Klausstrasse 33, 8008 Zurich, Switzerland and the paying agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1, 8024 Zurich, Switzerland. Copies of the Articles of Association, the Prospectus, the Key Investor Information documents and the annual and semi-annual reports of the Company may be obtained free of charge from the representative in Switzerland.

All investors in the UK:
In the UK this financial promotion is issued by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the Financial Conduct Authority. Client Services +44 (0)207 070 7444

All Investors in Hong Kong and Singapore:

This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.

This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.

All Investors in the People's Republic of China ("PRC"):

This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC.  The content of this document is only for Press or the PRC investors investing in the QDII Product offered by PRC's commercial bank in accordance with the regulation of China Banking Regulatory Commission.  Investors should read the offering document prior to any subscription.  Please seek advice from PRC's commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only.  Legg Mason and its affiliates are not authorized by any regulatory authority to conduct business or investment activities in China.

This material has not been reviewed by any regulatory authority in the PRC.

Distributors and existing investors in Korea and Distributors in Taiwan:

This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (109) Jin Guan Tou Gu Xin Zi Di 016; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2-8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.

This material has not been reviewed by any regulatory authority in Korea or Taiwan.

All Investors in the Americas:

This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member FINRA/SIPC.

All Investors in Australia and New Zealand:

This document is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827).  The information in this document is of a general nature only and is not intended to be, and is not, a complete or definitive statement of matters described in it. It has not been prepared to take into account the investment objectives, financial objectives or particular needs of any particular person.

Forecasts are inherently limited and should not be relied upon as indicators of actual or future performance.

The aforementioned Legg Mason entities are wholly owned subsidiaries of Franklin Resources, Inc.

Forecasts are inherently limited and should not be relied upon as indicators of actual or future performance.