Shares of transportation and travel-related stocks plunged more than 5 percent yesterday on the local bourse on concerns that a wider swine flu outbreak could discourage travel.
But a Standard Chartered Bank report released yesterday showed that Asia and the Middle East could be the regions best able to weather the latest health shocks.
Yesterday’s decline on the local bourse was across the board, with foodstuff shares falling 4.8 percent and construction issues dropping 4.2 percent, while financial shares dipped 1.5 percent and tech-related stocks shed 1.3 percent.
The only beneficiaries were hygiene and medical-related companies on expectations that demand for their products may surge to deal with any outbreak of the disease.
The benchmark TAIEX ended 108.32 points, or 0.9 percent, lower at 5,596.73. Turnover was NT$126.94 billion (US$3.76 billion), with foreign investors buying a net NT$5.55 billion in local stocks.
“The correction may last for a month before the dust of the swine flu settles,” said Mars Hsu of Grand Cathay Securities (大華證券).
The Standard Chartered report, co-authored by analysts Gerard Lyons, Mike Moran and Alex Sienaet, said based on lessons from previous outbreaks, tourism and related industries would face the first round of impact, followed by discretionary spending.
The analysts said they believed the flu was still in its early stages and its economic impact would vary greatly depending on its severity and duration, although the economic impact may be seen as V-shaped.
“The downward leg of the V is when discretionary spending is hit and confidence suffers, deterring travel and hitting tourism. Then, after the scare is addressed there is a rebound,” they wrote in the report.
Standard Chartered said the health scare was hitting the world economy at a bad time and would surely hit confidence, one of the factors that will heavily influence the timing of the end of this global recession.
Asia may face a test in coming weeks as there is a general feeling that the authorities here learned well from both SARS in 2003 and the avian flu in terms of their ability to prevent, monitor and react to such a health scare if the present outbreak hits Asia, the report said.
But the bank warned that the latest incident also posed a greater concern in terms of the fiscal fragility of governments that will roll out relief packages to prevent and contain the health problem.
In 2003, for instance, Malaysia spent an additional 2 percent of its GDP to address the disease while Hong Kong and Taiwan spent roughly 1 percent and 0.5 percent of GDP respectively on similar measures.
“The risks are naturally greater for economies where budget deficits are already high,” the report said.