The AusSMC gathered these comments from academics at the Australian School of Business who have been considering the impact of pandemics on financial markets and investor behaviour. Other factors considered include: social and economic impacts, risk management, scenario planning, telecommuting and HR management implications.
The media contact for the School is Marie Kelly (p: 02 9931 9240; m: 0408 256 381; Marie Kelly mariek@unsw.edu.au).
Associate Professor Lucy Taksa, from Organisation and Management at the Australian School of Business has researched the social impact of the 1900 bubonic plague and the 1918 – 1919 flu pandemic on those who experienced these dislocations and the public health policies and strategies that were adopted in Sydney in 1919, which included the wearing of masks, closure of all public venues and activities, as is currently being done in Mexico. Tel: 02 9560 6270 Mob: 0414 345 131, Email: l.taksa@unsw.edu.au
“Prevailing economic and political circumstances and media representations reinforce fear and confusion among people by encouraging anxiety and the attribution of blame, which can help to accentuate pre-existing divisions in societies and the propensity for stereotyping and potentially discrimination.
“We need to understand that although epidemics and pandemics are exceptional events that create abnormal life circumstances, they become interlocked with the broader social, political and economic contexts in which they occur and they have long-term consequences for individuals and societies. In short, they are never experienced in isolation. Rather they generate fear and interconnect with prevailing fears within societies. The impact of economic and social impact of such fear is evident in financial markets, tourism and other industries, prices (eg. Petrol) and social isolation, stereotyping, discrimination and loss of liberty as governments respond by increasing surveillance, quarantine and related control measures.
“Besides generating personal and social tragedies, epidemics and pandemics affect everyday life more broadly, as well as having an impact on collective memories.
“Public health policies and strategies implemented to contain diseases, such as the wearing of masks and closure of venues (schools, universities, factories, theatres, halls, churches, cafes, etc) create their own fears and anxieties, particularly when people become isolated. In fact, people interviewed about their memories of the Bubonic Plague in Sydney after 1900 and the Influenza pandemic 1918-19 noted that this enforced physical isolation while positive from a public health perspective had negative effects in the form of social isolation and fear of groups and ideas already identified as potentially disruptive.
“My research on representations and memories of the bubonic plague and Influenza pandemic illustrates how these events and the fears generated by them draw out and reinforce existing social problems and divisions, stereotypes and hatreds as people try to find explanations for developments that are beyond their control and to attribute blame, particularly to those groups of people or ideas that are already seen as a threat.”
Dr Vince Hooper, from Banking and Finance at the Australian School of Business is able to comment on risk influences on emerging markets: Tel: 9385 5984, Mob: 0401 469 803 Email: v.hooper@unsw.edu.au
“The emergence of the swine virus will see investors moving out of equities into safer havens like government treasury securities, where prices will be driven up and yields will fall slightly, perhaps of the order of 0.1% in the short term. Airline stocks will suffer in particular as they are particularly sensitive to these sorts of events. Biotech firms will be buoyed on the expectation that vaccines sales have the potential to increase in the wake of the virus.
“It is unlikely that the effects of the swine virus upon the Australian stock market will be as dramatic as the impact that SARS had in 2003, because the market is so polluted with bad information at present. We also have experience in dealing with viruses of this nature. The recent falls in Asia which have been attributed to the outbreak of the swine virus are consistent with an extremely nervous and volatile global stock market. The global economic and financial collapse is far greater than any potential harmful effects of an unlikely outbreak of swine virus in the region.
“The very strict Australian health, customs and quarantine rules will hopefully see a swift containment of the virus here in Australia if it is shown to appear threatening, and there is no need to panic but rather for us all to be vigilant and co-operative. We are much more advanced in terms of our ways of dealing with potential pandemics like this as opposed to developing countries like Mexico.”
Associate Professor Jerry Parwada, from Banking and Finance at the Australian School of Business, is an expert in managed funds and investor behaviour. He is available to speak on what can be learned about the reaction of financial markets to the current swine flu virus from markets’ response to the SARS virus. Tel: 02 9385 7936 Mob : 0422 983 244 Email: j.parwada@unsw.edu.au
“At this early stage the outbreak is concentrated in the northern hemisphere. This geographical coincidence may have financial implications.
“Since the practice of crowding by the public around stock exchanges led to closures of exchanges such as the Shanghai Stock Exchange during the SARS outbreak, it may be anticipated that if the virus spreads to Chicago and the east coast, trading pits may be closed as well. However, in China the closure of the exchanges, while inconvenient, did not in itself exacerbate the financial market’s reaction to SARS. It can be anticipated that if U.S. markets come to that stage, the markets would have factored in the effects and there should be minimal shocks to security prices.
“While the property market in Hong Kong experienced a fall in reaction to SARS, 1-2 percent by some accounts, the occurrence of the swine flu virus in North America and Europe is not likely to cause additional value declines to what the property market has experienced so far. This is because of less population density even in the equivalent of Hong Kong-like housing estates.
“The coming of summer in the northern hemisphere will likely hasten the recovery of airline and other tourism related stocks should the swine flu virus be contained quickly. For this to occur, the fatalities related to the virus need to remain low and the physical effects on people who contract the disease mild.”
Qantas Professor of Tourism and Travel Economics at the Australian School of Business, Larry Dwyer, has researched the economic impacts of SARS on the Australian tourism industry and is able to comment on potential implications for Australian tourism. Tel: 02 9385 2636 Mob: 0439 648 892 l.dwyer@unsw.edu.au
“Pandemics such as ‘swine flu’ affect tourism demand. People are becoming increasingly cautious about travelling to areas where they may incur higher risks of contracting a disease. The timing of the pandemic is particularly bad since Australia’s tourism industry is being badly hit by the global financial crisis. Swine flu has the potential to result in:
1. Reduced inbound visitor numbers and their expenditure. Since it is visitor expenditure that leads to increased incomes and employment across the nation, the pandemic will reinforce the negative aspects associated with the global financial crisis.
Since 99% of all tourists to Australia arrive by airplane there is great reluctance of people to subject themselves to the risk of airborne diseases that could be carried by other passengers. Studies by UNSW researchers concluded that Australia lost almost $1 billion in inbound tourism revenues as a result of SARS several years ago.
2. There will be less outbound tourism as well since Australians will be reluctant to travel abroad and risk contracting the flu. While this might lead to some increase in domestic tourism, the saved money may be spent on other goods and services or might simply go into savings.
3. Domestic tourism has been fairly flat and is unlikely to be much affected by the swine flu as long as the flu seems confined to overseas. If parts of Australia were to show up as areas where people have contracted the flu then domestic travel may be substantially affected depending on the incidence of the flu.”
Professor Michael Sherris, Head of Actuarial Studies at the Australian School of Business is able to comment on risk management and modelling. Tel: 02 9385 2333, m.sherris@unsw.edu.au
“Pandemics have the potential to cause significant economic losses from their effects on the operation of businesses as well as having significant impacts on financial and insurance markets.
“Not that long ago there were the SARS and Avian Flu viruses and rapid action by national and international authorities mitigated the risks arising from these although they had substantial local economic impacts particularly in Asia.”
“The risk of a pandemic is a serious issue as demonstrated by consequences of the 1918 Spanish Flu that infected about a quarter of the world population at the time. Not all businesses have in place business continuity plans to reduce and manage these risks such as operational plans under reduced staffing, working from home arrangements, communications, and health support services for staff including health tests, anti-viral medications and as well as insurance coverage.
“Disruption to the transportation, energy and financial sectors would have a significant negative effect which would compound the current adverse financial conditions. Insurance and health claims would be impacted depending on the severity of the pandemic.
“In Australia APRA, the prudential regulator, in 2006 developed a prudential practice guide for pandemic planning and risk management for regulated institutions. Insurance companies undertook stress tests for their potential financial exposure from a pandemic.”
Dr Loretta O’Donnell, Academic Director of the Graduate Certificate in Change Management at the Australian School of Business, has looked at case studies of Mad Cow disease and how it was handled in the UK and has produced a scenario planning based case study on bird flu pandemic in Australia. Dr O’Donnell is able to comment on the change management systems that need to be put in place, both at an organisational and individual level. Tel: 9385 9721 or Mob: 0411 542 730 Email l.odonnell@unsw.edu.au
“Consistent clear communication is the best strategy. The public prefer to be exposed to incremental information even if it means bad news, rather than not being told the whole story.
“The Government should aim to be completely transparent with the public in order to avoid overreaction, such as the mass hysteria that resulted from the handling of the Mad Cow disease in the UK. It is better to over communicate as a well informed public feel more satisfied and are more willing to understand the situation.”
Dr Geoff Dick, from Information Systems, Technology and Management at the Australian School of Business, is able to comment on telecommuting and working from home, and use of technology to minimise contact and reduce risks. Tel: 02 9385 5284 or Mob: 0423 827 104 Email: g.dick@unsw.edu.au
“If we are looking at containment of any possible outbreak, working from home will provide a very viable alternative for many people. Working from home means that people are able to control their own working environment, avoid contamination that may be prevalent on public transport and has the added advantage of being attractive to many employees.
“Technology means that many people can work (or at least complete a substantial proportion of their work tasks) away from the normal place of work. Such technology includes access to documents, video conferencing, online communication by means of wikis, blogs, email and chat rooms, all delivered to a laptop or mobile telephone – almost anywhere.”
Dr Carol Royal, from Organisation and Management is able to comment on human resource management implications. She notes that international staff assignments are often held up in these situations and that core business activities such as international sales and marketing are also curtailed. Tel: 02 9385 7150, Mob: 0418 362 417 Email:c.royal@unsw.edu.au
“Issues that need to be considered by business include:
- Occupational Health and Safety – Employers and their duty of care to take precautions to safeguard staff from illness of this nature.
- Possible staff shortages
- Productivity loss
- Expatriate Assignment disruption
“Travel Curtailed impacting those employees whose role requires international travel – business cost associated with not making those travel and business visits ( ie conferences, marketing to businesses globally etc).”