When will the peak come?
As world governments and citizens seek to flatten the curve of Covid-19 infections, identifying a peak in confirmed cases is essential and has huge implications for the market. Fiscal stimulus and monetary easing have helped, but the market will only calm down if a peak in new cases is identified, or at least in sight. After all, who is going to come out and jump on that cruise ship again if the virus is still here? The hope is that China has already reached that point. Can China’s seeming success shed light on when it might peak elsewhere?
While many have questioned the accuracy of official reports, the government has said that nationwide new confirmed cases had dropped to 39 as of Sunday, April 5, while new suspected infections dropped to 10. Of the 39 new confirmed cases, 38 were imported cases identified at major travel hubs, while new case at Hubei province, once the epicenter, were down to zero. In fact, there have been only five new cases there in the past three weeks.
The Chinese equity market bottomed on Feb. 3, the first trading day after the long Chinese New Year break, a few days before China’s daily new suspected Covid-19 cases peaked on Feb. 8. “Suspected cases” are different than confirmed cases, which peaked later (Feb. 12). But because the government relaxed reporting standards for technical reasons, the actual high point of new confirmed cases was likely earlier than this. By March 5, the equity market had completely regained lost ground and even attempted a new 52-week high. Discovering a peak had much to do with the renewed confidence of investors.
What is the situation elsewhere? The daily new confirmed cases globally was 75,400 on April 4, a dip from an all-time high of 101,500 on April 3. While this is certainly welcoming news, it has happened on a number of occasions previously, only to be overtaken by higher numbers later on. We need to see more of such good days to confirm whether a down trend is developing. Continued improvement in Italy, Spain and France, as well as a marked slowdown in momentum in the U.S. and U.K. will be necessary. Once we reach the peak in new cases, global equity markets should be able to look forward and estimate how those various stimulus programs will help the economy heal.
The looming concern is a resurgence of new cases if social distancing restrictions are relaxed. China’s experience could especially be telling. The government lifted its quarantine of most of Hubei province, with Wuhan set to open soon, and it has been pushing businesses to return to normal. Various data suggest China is now operating at above 80% of normal economic scale. But lurking in the background is the possibility that this openness will lead to new cases, particularly those that might come from people returning from abroad.
To address this, China has launched a number of initiatives, among which its Health Code is most innovative. This is a QR code——those familiar 2D scanable barcodes—that appears on cellphones through apps such as Alipay and Wechat, that turns green to tell people they could travel freely and go about their life as usual. Security guards will only let in people in shopping centers, office buildings and the like if their code is green. Those entering the country will be put into quarantine for two weeks during which Covid-19 tests will be taken and their health code is yellow until afterwards. The big data analysis could in theory quickly identify new cases and determine where that they have been and with whom they have been in close contact. It is said that the system is accurate enough to identify a specific seat in a bus.
Whether or not such an extreme method would work in other countries is debatable. But the implication is that better information about who is infected and where they went is of immense importance before any breakthrough on the vaccines arrives. If China has truly seen a peak in cases and can prevent the spread of new ones, it is good news for the rest of the world.