As if the global economy didn’t have enough troubles at the moment, fears of a swine flu pandemic are the latest challenge financial markets must face.

A new strain of swine flu virus, originating in Mexico, but now popping up in a number of countries, including Canada, has health officials concerned. That concern is spilling over to financial markets too, as the fears of a flu pandemic that have been around for several years are reviving.

“Just as confidence appeared to be returning, the global economic recovery is again put to the test, this time by a fearful disease,” notes National Bank Financial in a research note.

“In place of data, markets have swine flu to contend themselves with,” observes a commentary from Stewart Hall, economist for HSBC Securities (Canada) Inc.

“North American data limited to Dallas Fed manufacturing survey. Not enough to pry eyes off of flu related news items,” HSBC adds. “For today market direction is largely driven by the potential economically debilitating effects of a pandemic which have put under heel some of the global economic green shoots that had poked above the financial detritus. The market inclination is to link the potential for pandemic to its ability to derail global trade.”

At midday, the S&P/TSX composite index was down about 73 points, 0.8%, at 9,471.

NBF recalls that fears of pandemic “had a very tangible impact” on equity markets back in 2003 with the outbreak of SARS, even though the number of people infected turned out to be small as pandemics go.

“For Canada, the response mechanisms to threats poised by disease are significantly more robust having experienced both SARS and occasion for concern with regard to bird flu and mad cow disease,” HSBC adds. “The proliferation of hand sanitizing stations found in most buildings in Canada attests to a population sensitive to the transmission of disease which suggests that the market response may be to treat the current situation like a SARS type of experience when indeed the risk has been mitigated by education, experience, increased awareness and preparedness.”

HSBC observes that person-to-person transmission of swine flu has occurred in the past but was not sustained beyond three people, according to the U.S. Centers for Disease Control. “The trouble with influenza however is its tendency to “drift and shift”,” it says. “Influenza is typically changing all the time “drifting” with incremental gradual change taking place, which accounts for the need to annually update flu shots. The concern arises when there is a shift which denotes an abrupt change to produce an unfamiliar strain of influenza virus.”

“Virtually every outbreak or epidemic follows a classic bell-curve pattern and this is what will need to be watched in the coming weeks,” NBF concludes. It reports that even though the World Health Organization lifted the SARS alert in the summer of 2003, “the market began to rally at a around the time the number of probable cases began to fade.”

IE