🔒 Much ado, camel’s back or foxy unity – Clem Sunter flags three roads for coronavirus

The world appears to be more polarised with a general perception that political and value systems that were inherited after the Second World War are being eroded. With populists in power in many countries, including the United States of America, it does appear that the world is in crisis. All this is amplified by social media, where people post their knee-jerk reactions with scant observation of deeper reflection. When an epidemic or pandemic like the coronavirus enters a system that is already prone to overreaction; it easily becomes mass hysteria. And it appears that financial markets that are often too sensitive to investor sentiment are following, which could be a bigger danger to the world economy than the actual virus. There are many theories of how the virus outbreak will pan out. Well-known scenario planner Clem Sunter spoke to Biznews founder Alec Hogg about three possible routes that the world could follow. The ‘Much Ado about Nothing’ route, or as young people would say, ‘Whatever’; the last straw that breaks the camel’s back and the adaptable route of the fox, in which businesses and citizens pull together to implement “the best things to do.” He expressed the hope that the coronavirus could help the world realise that “we all live on the same planet and we need to create a shared destiny.” – Linda van Tilburg

We’re off to Somerset West now and it’s a warm welcome to Clem Sunter. Clem, you sent me a piece that you wrote for News24 about the scenarios of coronavirus. It’s fascinating and you referred back to your book of a few years ago, when you spoke about the different flags that we need to watch out for – ‘Flag-watching’  You’ve got three scenarios. South Africa knows you as a scenario planner. Can you start with those scenarios and explain to us which of the three is the one we should be most concerned about?
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Alec, when I wrote Flag-Watching in 2015, I just said one of the flags is a pandemic. Obviously, I didn’t know when it was going to happen but the increasing probability of a pandemic due to international travel and concentration of people in megacities meant that it could happen in the foreseeable future. As soon as Covid-19 popped up, I thought of three scenarios to really cover the possibilities. First is much ado about nothing, which is put forward by quite a few American experts; that this is going to be a normal outbreak of flu and yes, it’s got a higher fatality rate of between 1 and 2%, compared to 0.1% for flu of cases but it will in fact calm down and disappear like SARS and MERS, so that’s the first scenario – much ado about nothing.

Taken from Shakespeare, no doubt.

The second one – camel’s straw – is where the virus does not create a huge pandemic but it’s sufficiently disruptive to cause a real crash in the financial markets and the reason that I put forward this scenario is that the market’s very high. If you look at the Standard & Poor’s price-to-earnings ratio before the current fall, it was 26, which – by historical standards  is very high – and the world economic growth rate has been slowing down, so it was all really fragile. The coronavirus would, like the straw on the camel’s back, actually break it and we could see fairly calamitous economic results. We’ve seen them already in tourism and industries related to conferences, and other things where people get together. Yes, we could see another crash in the markets just like the one we had in 2008 and I call that this the camel’s straw scenario. The third one is the genuine thing,  where we have another scenario like Spanish flu in 1918 to 1920, which killed around 50-100 million people then and reduced the world’s population by 3-5%. So, this would be the serious scenario because this would kill say, 200-300 million people in the world. At the moment, I give a low probability to that because it would appear that China, for the time being, has put a lid on the epidemic there. The number of new cases is very low so what China’s now experiencing is ‘much ado about nothing’ because they put in place very extreme measures. However, it is rising in Europe and America and one doesn’t know whether, as democracies, they will be able to do what China did – to isolate whole cities. I know that they’re trying to do that so the camel’s straw scenario is very much in play and I see that the FTSE 100 this morning fell by 8%, so one must bear that scenario in mind and be diversified in one’s portfolio.

Mr. Market is certainly going a little bit nuts. The JSE has seen Sasol down by 43% – at below R100/share. I don’t think it’s been there since it was listed many years ago, so there is definitely a group of people who… Surely, the Spanish scenario Clem, isn’t in play because if there’s only a 1% mortality rate, it wouldn’t appear that would be a possibility, or am I misreading it?

Well, funnily enough, I looked up the Spanish flu on the internet and the mortality rate wasn’t that high. I thought it would be in the range of Ebola, around 70% but it wasn’t a vey high fatality rate. It was somewhere in the region of 4-5% so you know, it does appear that you can have a virus, which is very contagious and which, you know, lots of people catch and that adds up to a major figure in terms of fatalities. So we can’t rule it out altogether because we don’t know the true fatality rate of coronavirus but all I’m reading would suggest that this may be a ‘much ado about nothing’ scenario in terms of not having a genuine epidemic but, and this is the real thing; it is already causing massive disruption in the global economy and that’s why we’re seeing the markets go down.

I like the quote that you used in your piece from Louis Pasteur: “It is the microbes who will have the last word.” It reminds me of HG Wells and War of the Worlds where microbes did have the last word.

Absolutely, and as I said, we need foxy politicians and foxy nations to set aside their differences and present a united front so that the virus does not have the last word. I don’t know whether that’s possible because we all know how divided the world is in America between the Republicans and the Democrats. Elsewhere, populism is very much to the fore but this is the moment where people really have to come together and have a coordinated plan and businesses have to do everything to protect their staff and workforces, and individuals obviously have to protect their families. It certainly raises challenges to all of us because I think that conventional strategic planning has rarely ever built in a response to a viral epidemic and now is the time to start thinking ‘what are the best things to do’. As you say, forewarned is forearmed and that is absolutely correct and we have to do it in the case of this virus.

Clem Sunter, scenario planner, giving us his insights on the different flags that we should be watching.