The Ebola epidemic is fast becoming the lead story in the news, as the death toll mounts – it’s already killed more people than every previous outbreak combined – and cases start to appear in the USA and Europe. Most of the attention is focused on the spread of the disease and the steps being taken to contain it, but behind the scenes many financial analysts are concerned about the effect it could have on the markets.
It’s no secret that epidemics can have a serious impact on finance. Both the 2003 SARS outbreak and the 2009 swine flu pandemic sent share prices tumbling, and while it’s unlikely to be as serious in medical terms as the 2009 panic the Ebola crisis has the potential to cause far more damage to the markets. With the world’s major economies still struggling to shake off the effects of the debt crisis it couldn’t have come at a worse time.
Most previous Ebola outbreaks have burned out quickly; the disease has a very high mortality rate and kills quickly, so usually when it injects a village everyone either dies or flees, and that ends the epidemic. In this case victims managed to reach other villages, then larger towns, and now they’re getting on planes to the USA. The medical aid effort has also ironically helped spread it; bringing sick health workers back to unprepared US and European hospitals has caused new infections. There’s a real risk of it becoming a global plague.
Even if Ebola stayed localized in Africa the potential damage is not small. The source of the outbreak is Guinea, which is a major producer of bauxite and has the world’s second largest reserves. Preventing the spread of Ebola means reducing movements and isolating affected areas, and that could rapidly cripple the mining industry. The effect would be a rise in the price of bauxite and, as a result, everything made of aluminum.
The next countries affected were Liberia and Sierra Leone, where the virus has spread rapidly. Sierra Leone is well known as a diamond producer but also has major deposits of rutile, a commercially significant titanium ore.
So far Nigeria has only been lightly affected, with twenty cases reported and the outbreak, for now, contained. However borders in the region are not secure and there’s a risk of new outbreaks. That could have an impact on oil prices, as Nigeria is the eighth largest exporter, and more expensive oil pushes up prices across the board. With consumer confidence already shaky that risks a major slowdown.
What separates this outbreak from the earlier, more localized ones is that infected people have been getting on planes. That’s how it reached Nigeria, and later Texas. This is a very serious development. If the epidemic worsens – and both the World Health Organization and the USA’s own CDC seem to have completely dropped the ball on containment efforts – it’s likely flight restrictions will come in at some point. That would have a devastating effect on many air carriers but even without flight bans to affected areas passenger numbers are likely to fall; who wants to share a cramped metal tube with potential Ebola victims?
Major epidemics have a general chilling effect on travel and tourism, so we could expect falling share prices in the aviation and hospitality sectors with knock-on effects for their suppliers. Forex traders are likely to dump the currencies of badly affected nations in anticipation of economic slowdowns. On the other hand pharma stocks could get a significant boost. With much of the world’s gold coming out of Africa we could see supplies running short just as demand is pushed up by falling stocks; that’s likely to cause price spikes in precious metals.
An epidemic as deadly as Ebola can have far-reaching effects, and however bad the disease itself the harm it does to the economy, especially at a vulnerable time like this, could end up being even more of a disaster. Traders and investors need to keep a close eye on this outbreak and be ready to act if more countries are affected.