• The outbreak of swine flu in Mexico and its spreading to other countries - most notably the US - have unnerved global financial markets. Naturally, Mexican markets are the hardest hit.
    • Swine flu has the potential to become a significant global market mover if it were to develop into a global pandemic. However, it is still far too early for this.
    • We will track swine flu's development to ascertain to what extent it could impact markets and economies.

    Background

    The outbreak of swine flu in Mexico and its apparent spreading to the US and other countries have unnerved markets today. This could continue to have an impact on markets over the coming days and possibly weeks, similar to the outbreak of SARS in 2003, which hit Asian markets in particular.

    We will send out regular updates on the situation as long as it continues to be a market theme.

    Recent news

    The status on the spread of swine flu, as of Monday morning, is the following:

    • Mexico is especially hard hit. More than 100 people are now reported to have been killed by the flu.
    • In the US more than 20 people are reported to have been infected by the virus. On Sunday the US declared a national health emergency. Possible infections are also reported in Spain, France, New Zealand and Canada.
    • Worldwide authorities are stepping up border controls and changing travelling advice concerning trips to Mexico.
    • Russia has banned all meat imports from Mexico.
    • The World Heath Organisation’s emergency committee will meet today to decide whether to raise the level of the agency’s pandemic alert.

    Market impact

    In general we have seen a rise in risk aversion today on the back of the reports of the outbreak of swine flu. This has led to the usual knee-jerk market reaction – lower equity markets, stronger Swiss franc, higher gold prices. Furthermore, airline stocks have dropped significantly today on fears that the flu might reduce international travel and trade activity.

    Not surprisingly, Mexican markets have been the hardest hit with the Mexican peso selling off more than 3% since the first reports of the flu on Friday.

    The impact on Emerging Markets seems to be bigger than on developed markets, as they are assumed to be less prepared and more vulnerable to a global pandemic.