Risk managing swine flu when you aren't a virologist.......

Hi,

Swine flu is the big topic of the day and I thought I'd post a few pointers for those of you who are scratching your heads wondering what on earth to do. The path of least resistance is just to watch and see how this plays out, and I'm sure that's what the majority of people are doing. Unless of course you managed to pile into the pharmaceutical shares at the start of the week to jump on that predictable capital inflow bandwagon.

It isn't clear yet how deadly this virus is but given it has probably been around for a couple of months already and hasn't yet registered its first death in Europe, leads me to instinctively say that it won't be any where near as virulent as some of the more theatric media reports are suggesting. The media makes money from getting your attention, what better way to get your attention than the possibility of death by pig inspired influenza. Deaths will certainly come from this virus, and no doubt flu deaths are likely to spike above normal (for the UK normal is roughly 10,000 per year, ish, but these deaths never receive any media attention and are an accepted fact of daily life), but how far above normal is not an easy question to answer.

With markets flat lining, current popular opinion is that the flu will be largely a damp squib, not meriting the attention it is currently getting. Could we be surprised on the downside? It isn't impossible but I don't think so. Media attention is way overplaying the risk and unnecessarily alarming the public.

A few facts to keep in mind when considering what to do:

Firstly, the Spanish flu pandemic of 1918 killed between 2 and 20% of all those infected, one of the symptoms being hemorrhaging from the ears and mouth. So far, the reports of the symptoms don't come anywhere close to those of the severity of the Spanish flu outbreak of 1918. Of course the virus could mutate into something more sinister but it certainly hasn't yet and there's no guarantee that it will. The first reason to be cheerful !

Secondly, the majority of those who died in 1918 did so of secondary bacterial infections brought on by the initial influenza outbreak. For those people living in countries with well funded health care systems, the majority of those bacterial infections are likely be avoided through antiviral drugs and antibiotics. The second reason to be cheerful. In 1918 all you had was the whiskey bottle and your own constitution.

Thirdly,with international travel over the last 20years through plane, train and automobile available to the masses on a scale never before seen in humanity's history, human beings are more interconnected than they have ever been before. As a result, flu viruses spread through society much more quickly than ever before. While this is a risk in the sense that, if a killer flu does come along, it will spread very quickly, it is also a defence; due to human interconnectivity we all get a whiff of every virulent flu strain every year and our immune systems are that much more efficient at fighting them off, even if they are a particularly nasty strain.

In summary, ignore the media hype. Flu is here to stay, occasionally flu deaths will spike but the threat of a flu pandemic is an unavoidable fact of human life and something we are better prepared for than ever before. I would suggest carrying on as normal, have bacon with your breakfast if that is your habit and, if you must, buy OTM equity puts in emerging market indices, especially if it looks like the virus has mutated into something more formidable. Look for reports from key medical agencies that list more severe symptoms to give you a head start on whether a malignant mutation has occurred or not.

Happy hunting,
Andy Shaw