Ebola isn’t going away – what does it mean for stocks?

I’ve been kind of hoping that the Ebola story would start to fade away at some point.

Like Sars, bird flu or even our very own mad cow disease, these things often start off as a big drama, but end up burning themselves out.

But there are no signs of Ebola burning out just yet, and we’re now six months into the affair.

And panic is starting to spread. With Ebola now on US soil, President Obama is springing into action. Politicians are up in arms in Europe, too. We can even see it in little old Norway, where the first case of Ebola has now cropped up.

If you’ve been ignoring this story, then I’d recommend spending five minutes now getting up to speed.

As you’ll see in a moment, it’s not just a health issue. The impact of Ebola has already been felt in several areas of the stockmarket, too.

You should know what’s going on

Given the UK’s status as key global hub, there is little doubt that Ebola will soon reach our shores.

In fact, earlier this week scientists at Boston’s Northeastern University calculated that, based on flight patterns, there’s a 50/50 chance of it hitting Britain by 24 October.

And this is a very nasty disease. The reproduction number (known scientifically as R0) is two. That means, for everyone that gets it, they’re likely to pass it on to two others. Two, four,  eight, 16  – that’s a scary progression!

In Africa, it’s killing 70% of those infected. No doubt, fatalities can be brought down to under 50% with better treatment. But by gum, you don’t want to get this fella. Even a disaster like the Spanish flu only culled around 2-3% of its victims.

Symptoms show after a week, and if your time is up, it’ll usually come within the following week or two. The symptoms start as a fever, but moves on to (and I’ll try to put this tastefully) liquefy your insides. The body wants to excrete/secrete this nasty disease any way it can.

And of course, all these secretions are highly infectious. A Spanish nurse caring for a sufferer caught the disease despite wearing full protection.

Heaven knows what’s going on in places like Sierra Leone, where many of the dead are reported to be lying on the street as burial teams go on strike.

Is there any good news?

Even the good news is bad

Well, there is a bit. While a reproduction rate of two may sound scary, the fact is that two is actually relatively low.

And unlike something like flu, Ebola requires contact with bodily fluids (ie, it’s not airborne). It’s also not like malaria – which can spread through third parties such as mosquitos.

Also, the disease isn’t contagious until symptoms start to show. That means, one should know who to steer clear of! (Of course, given that victims show no symptoms for at least a week, that means they can travel about the world, spreading the thing far and wide, without anyone realising until it’s too late!)

The unfortunate fact that it’s so deadly also brings forth two benefits:

First, if a sufferer dies, they’re no longer infectious (assuming the bodies get disposed of properly!).

Second, knowing how deadly the disease is, people are careful not to put themselves in harm’s way.

You may risk getting on a train even if you know there’s a nasty cold going round – and even if it’s highly contagious. But given the lower chances of catching something deadly – well, you’ll probably say “No thanks, I’ll stay at home”.

Just think about what that means. Communal activity collapses – travel, work, shopping, etc.

As I said at the start, this disease has some very nasty social consequences. And they, in turn, have an effect on the stockmarket.

Travel and leisure down; pharma up

Stockmarket chart

As far as the stock market goes, panic has clearly not set in yet.

That said, there’s a noticeable disparity between the performance of pharma and biotech sector (blue line), compared with travel and leisure (pink) since the outbreak first started to spread at speed.

Also remember that 70% of global cocoa production comes from West Africa. Prices are already starting to spiral upward.

The World Health Organisation forecasts that the number of cases could rise from under 6,000 in late September to more than 20,000 by early November.

There’s clearly a lot more pain to come.

So what should you do?

If you were thinking about buying an airline stock, you may want to sit on your hands for a little while. Wait until things settle down somewhat.

And if you were thinking about taking profits in certain sectors that may be affected, then that may not be a bad idea.

Likewise, now may not be a bad time to take the plunge on certain pharma and health stocks. Though we all pray this story fades away, the fact is, all the time it is news, it’ll keep the sector in focus.

It’s also worth considering your own health. The body’s ability to fight disease is always a factor of general health. As we enter winter, it’s always worthwhile keeping yourself active and healthy. Why wait for a New Year’s resolution?

Sleep well, stay fit and don’t worry (too much!).


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