SWINE FLU: Is outbreak a buying op now?

The following insightful content comes from an email being circulated after it was sent out by the head of research of UOB Kayhian (Hong Kong) today ...

Dear all:

The main differences between SARS and swine flu:

a. Based on the latest figures reported from Mexico, the mortality rate of swine flu appears to be low compared to SARS. Also, there have been a couple of swine flu cases reported in the US, but no deaths have been reported so far and the conditions of the patients are reportedly good. In 2003, the mortality rate of SARS was very high.

b. According to some reports, Tamiflu, an antiviral drug, works against the swine flu; in 2003, no drugs were effective in dealing with SARS.

c. In 2003, we did not know what the virus was related to SARS at the beginning. Now, we know what swine flu is at the beginning. In a few months, an effective vaccine is likely to come out.

However, the stock market is always sensitive and we should not under-estimate the impact of swine flu. The situation over the next few days will be crucial.

If the number of swine flu cases grows explosively and the flu spreads to other countries rapidly, the impact on the stock market will intensify; if the number of cases does not grow rapidly over the next few days, fears for swine flu will subside.

The beneficiaries and losers in HK/China are as follows:

Losers:

a. Aviation - Cathay Pacific (293), China Eastern (670), China Southern (1055), Air China (743)
b. Meat processing - China Yurun (1068), People's Food (PFH SP)
c. Lysine producer - Global Biochem (809)
d. Retail stocks will eventually suffer if the flu cases grow rapidly

Gainers:

a. Vitamin C producers - China Pharmaceutical (1093)

I am an optimist and believe that this is a buying opportunity. That said, we need to monitor the situation closely and see whether the number of swine flu cases will grow rapidly over the next few days before we buy.

Best regards,

Elvic Ng,
Head of Research
UOB Kayhian HK

SWINE FLU: Is outbreak a buying op now?

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