CORONAVIRUS:
THE PLAN AND EFFECTS

Introduction

Global stock markets are now down 17% for the year to date as at Friday 27 March (based on the iShares Core MSCI World ETF), compared to a largest historical decline of 48% since 1999.  Medium-risk portfolios are down by much less than this, and performance remains within the largest historical declines that we have used to test them against our clients’ financial goals.
 
The media have been reporting the actions taken by the British government to support the economy through this crisis. Rather than repeating this information, we thought it would be more useful to explain what we think is going on: what the government’s plan is for combating the coronavirus, whether it will work, and what the implications are. We are bankers, not epidemiologists, but we are trying to get a grip on the situation and this piece sets out our tentative understanding (please do not rely on it). Some links to papers on what the UK and US governments and central banks have done are below.
 

• PWC summary of UK support for business
• UK support for the self-employed
• Bank of England’s summary of its own actions (further information via the red links)
• Politico summary of the US aid package
• Summary of Federal Reserve actions to ease financial market stress

 
In summary, we think the government’s plan is probably to hit the virus hard with a 2-3 month lockdown and then keep it under control by testing a lot of people and tracking down people with whom the infected have been in contact (called “contact tracing”). Versions of this strategy have worked in China, South Korea, Taiwan, Hong Kong and Singapore.
 
On that basis, we expect lockdown to be lifted in the UK between 21 May and 29 June; that some social distancing measures to remain in place after that; and that after an unprecedented fall in GDP, the economy could snap back.
 
With the situation so uncertain these are only our best guesses, and we will do our best to keep our clients informed as the situation continues to evolve (and would appreciate hearing their views). We are following the news closely and our private bankers and I are on hand to discuss the situation if that would be helpful.
 
Numbers in square brackets refer to the links at the end.

What is the government's plan now?

Lockdown alone
 
In the Imperial paper, lockdown looks like a very bad strategy [2]. In the model, if you impose a lockdown and then relax it, the virus simply bounces back and all you have done is delay the damage. If you keep the lockdown in place, it seems to last indefinitely, until a cure or a vaccine is found.
 
Some have taken this to mean that a lockdown of six months or more is possible. The situation is so uncertain that I am cautious of ruling anything out, but I think that is unlikely: the economic damage would be huge and unprecedented; large parts of the economy would shut down; it would be hard to restart activity if many companies took on huge debt or went bust; and the vulnerable would suffer the most. I have used a very rough model to estimate that the economic cost of lockdown may exceed society’s willingness to maintain it after three months [6]. I take the Imperial paper as showing that lockdown alone is not a practical response to the coronavirus emergency.
 
Lockdown plus testing and contact tracing
 
Some scientists immediately criticised the Imperial paper [3] for failing to consider the possibility of heavy testing to see who was infected combined with tracing of whom they had contacted, further testing of those contacts and quarantine of infected cases. They suggested that these measures could be effective in controlling the outbreak. South Korea [8,9], Hong Kong [10], Singapore [10,11] and Taiwan [12] have all used strategies like this. For now, South Korea seems to be controlling its outbreak without a lockdown [13].
 
On 20 March, in his first appeal to people to stay at home, Boris Johnson said that the government’s ambition is to “turn the tide” against the coronavirus in three months and eventually to “stamp it out”. He mentioned testing and digital technology (for contact tracing) as important means to that end. This suggests that, from the start of the lockdown, the British government was hoping to follow the South Korea strategy. As we saw above, Britain originally tried to follow this strategy of testing and containment but it seems that the country simply was not ready in time [7]. That is now changing as the government buys tests and invests in contact-tracing technology.
 
The overall plan
 
The experience in China suggests that the spread of COVID-19 can be almost halted by lockdown [4]. I expect that the government’s plan is therefore to put a stop to the run-away epidemic in the UK with a similar lockdown and then keep it under control with testing of suspected cases and contact tracing. Epidemiologists are now saying that experience in China and South Korea shows that this approach is feasible [15,16].

Ways in which things could get better or worse

Vaccine
 
The media have reported experts’ estimates that a vaccine could be available in 12-18 months. However, these estimates are guesswork. It took five years to create a vaccine for Ebola, and that was a record. Technology has improved since then and a trial vaccine has already been injected into human subjects [20], but these new technologies have not been used to defeat a new virus before. It is also a problem that vaccines can be dangerous – an effect called “immune enhancement” can actually help a virus to infect cells – which means that proper testing is essential [19, 21]. And as the Imperial College scientists observe, there is no guarantee that early vaccines will have high efficacy [2]. This explains why it is unlikely that vaccination is a core part of the government’s plan. However, it will clearly be helpful if a vaccine can be found.
 
Treatments
 
A variety of drugs and treatments are being developed or tested against COVID-19, including existing antiviral medicines, blood plasma from people who have had the virus, arthritis drugs, artificial antibodies (potentially early autumn) and new antivirals (2021 at the earliest) [21]. The World Health Organisation has launched a trial of the most promising existing drugs, which are: “[i] an experimental antiviral compound called remdesivir; [ii] the malaria medications chloroquine and hydroxychloroquine; [iii] a combination of two HIV drugs, lopinavir and ritonavir; and [iv] that same combination plus interferon-beta, an immune system messenger that can help cripple viruses.” [22]
 
We should bear in mind that clinical trials often fail and promising drugs often turn out to be useless or even harmful. It is therefore difficult to predict when a reliable treatment could be available. But a serious and coordinated global effort is under way.
 
Population immunity
 
Some disease models have suggested that more people could have the virus than was initially thought. A paper from scientists at Oxford [23] shows that 36-68% of the UK population could be infected, while another paper argues that cases in Italy could be 15 times reported numbers [24]. We may hope that is true, but at the moment these are just models [25].
 
To discover the reality, what is required is widespread testing not just for active infections, which is what is mostly happening at the moment, but for antibodies to the virus in people’s blood [26]. That will tell us not only who has the virus, but who has had it (and could therefore be immune). Antibody testing is already being rolled out: the UK has ordered 3.5 million tests in the first instance and is planning to begin home testing.
 
It may turn out that fewer people have already been infected than we might have hoped, but antibody testing will also be useful in the exercise of keeping outbreaks under control once lockdown is lifted, and may be helpful in getting people back to work.
 
Seasonality
 
COVID-19 may become less of a threat in the summer (it appears to be more prevalent in the northern hemisphere at present, but that could be reporting bias). On the other hand, even if it does, action to contain outbreaks could become a seasonal necessity, recurring every year [27]. According to one new modelling paper [28], this is likely if immunity to the virus is not permanent – in other words, if you can re-catch it after a few months, as with some cold viruses. If immunity is permanent, the virus could disappear in five or more years after causing a major outbreak.
 
Fatality rate
 
As has happened in previous pandemics, the number of infected people who die of COVID-19 is probably inflated because of the lack of testing of people who are not badly ill. Unfortunately, at this point in time we cannot know what the true fatality rate is [29].