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Bird Flu February 4, 2004
Our research desk examines the recent outbreak of bird flu.
Author : Wong Sui Jau


Untitled Document BIRD FLU
WHAT SHOULD YOU DO?

Avian Influenza, or bird flu has hogged the headlines recently. The virus had infected poultry and birds across 10 Asian countries and resulted in the culling of millions of poultry. The bird flu has also jumped from birds to humans in certain cases resulting in at least 10 deaths so far. Thailand, was country that brought this bird flu into the limelight. After initially denying that there was bird flu in Thailand for weeks, it finally admitted that there were people infected with bird flu on Friday, 24th January 2004. (click here to read fund manager's reactions to the bird flu)

Right now, the main impact of the bird flu is on the poultry industry, particularly in Thailand, which is the 4th largest exporter of poultry in the world. There are also worries that more people may get infected with this bird flu, catching it from being in contact with birds, or in a worst case scenario, if the bird flu mutates into a flu that spreads from person to person like SARS. So, is there cause to worry, and should investors sell out of markets now, particularly from Thailand?

The current bird flu represents a good buying opportunity for savvy investors. Asian governments already had a taste of how if not properly managed, panic by the public can lead to a significant drop in activity. So, having seen first hand what SARS can do, Asian governments would probably take every measure possible to try to keep this from spinning out of control. The bird flu is nowhere as bad as SARS was because right now, it affects mainly birds. So, the worst hit is the poultry industry. Even in Thailand, poultry exports accounts for just 1% of its total exports. They expect the bird flu outbreak to trim just 0.4% of Thailand's economic growth this year.

However, investors often sell stocks and ask questions later. So, even the non-poultry stocks get hit as news of the bird flu outbreak hits. But this kind of sell down of the market is temporary. And so, this actually represents opportunity to fund managers and investors alike who can keep their cool during this time. The Thai market's correction is a healthy one, given that it had already risen by more than 100% last year. So, any bad news which cause investors to take pause and look at fundamentals more closely would actually be good for the market in the long run. Even now, after the run up in 2003, the forecast valuations and earnings of the general Thai market is still reasonable and the Thai economic growth, if anything, is expected to be stronger this year and the next.

Even SARS, when it happened, represented a buying opportunity for the investors who dared to go in and buy during those scary times when many people stayed indoors. An investor who had invested money during the SARS outbreak into Asian equities would have made a substantial gain after the outbreak was controlled and public panic had ceased. The SARS outbreak made it into newspapers headlines in April and reached a peak in May 2003. Yet, investors buying into Asian equities in those 2 months would now have gains of 50% by today. The current bird flu is nowhere near as destructive as SARS and so, any dip in markets that would result from it would also be short term in nature.

The Bird flu is not new. It has hit the world before. An earlier bird flu outbreak in 1983 which hit the United States, resulted in the destruction of more than 17 million birds. The first time bird flu jumped from birds to humans was in 1997 when the virus jumped from birds to infect 18 people out of which 6 died. However, destruction of Hong Kong's entire poultry population of 1.5 million birds had nowhere the level of impact that the Asian financial crisis was to have on the Hong Kong market.

Since then, there has been further outbreaks of bird flu with the latest, being the most serious one yet in terms of countries being affected. Nevertheless, it remains very much a virus that affects mainly birds and only in very rare cases, where humans have come into close contact with live infected poultry has the virus managed to jump from birds to humans.

The same that can be said for Thailand applies to the rest of Asia as well. Even if more people get paranoid and stop eating chicken, that doesn't mean that Asia's recovery will be affected because chicken exports are not what forms the main Asia exports. There has been no conclusive evidence so far that the bird flu virus can be transmitted from human to other humans. Even if the worst case scenario happens where the virus mutates into a human virus. Asian governments would be better prepared to deal with this having prior experience in dealing with SARS just 9 months before. So, this worst case scenario is not as scary as investors might imagine it to be.

Any fall in the markets resulting from the bird flu is likely to be a knee jerk reaction and hence temporary in nature. We would advise that investors should actually view any such corrections as opportunities rather than to panic and sell. Many investors watched as markets shot up substantially in the SARS aftermath and swore that the next time something like that happened again, they would go in and buy. The opportunity has arrived sooner than anticipated. The bird flu is hardly as destructive as SARS is, yet, it easily evokes all the fears and dread that came with SARS. As rational investors, we should be telling ourselves, "Fool me once, shame on you, fool me twice, shame on me!"


Wong Sui Jau (AFP, Research Manager and a licensed investment representative) is part of the Research and Editorial team at Fundsupermart, a division of iFAST Financial Pte Ltd.

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