Lessons from how markets reacted to previous global health epidemics like SARS

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George Santanya, a Spanish philosopher, had said, “Those who do not remember the past are condemned to repeat it.” The saying remains relevant, even today.

If we continue to operate like our ancestors, we are likely to make the same mistakes. The Covid-19 pandemic has given us an opportunity to test the ‘history repeats itself’ theory.

We are in the midst of a global crisis. But this is not the first crisis to hit the world, nor will it be the last. If we talk about the stock markets, just 12 years ago we were hit by an economic crisis of global scale.

However, it would be wrong to compare the Covid-19 pandemic with the Global Financial Crisis. The financial crisis had an impact on the livelihoods of people, but the Covid-19 crisis has affected livelihoods as well as physical well-being.

Secondly, a financial crisis can be largely mitigated through monetary stimulus. It affects household incomes. If adequate financial support is provided, a bulk of the demand recovers. But the same cannot be said for a health crisis.

Pandemics like Covid-19 affect consumer behavior, which is harder to predict and manage. For instance, theatres may not witness an immediate rebound in the number of visitors. Watching a movie is a discretionary spend, just like many other activities. Many other activities may rebound, but people may not step out to watch a movie until their safety is guaranteed.

The current crisis can be compared to the SARS outbreak in 2003. Though there are differences, the SARS outbreak was the most similar to the Covid-19 outbreak. Both are infectious diseases and the financial and consumer reaction has been similar.