AIQ - The risk edition

When will we learn our lesson on pandemics?

Part 1 of our series exploring the potential source of the next global crisis

COVID-19 has reminded us that the sources of economic and financial crises can be wildly unpredictable. However, while spotting patient zero in advance was nigh on impossible, pandemic risk was well telegraphed. In the first part of our mini-series, The source of the next crisis, we consider whether an infectious disease could wrong-foot us again or whether governments will learn their lesson.

The image of Rio de Janeiro’s iconic Christ the Redeemer statue wearing a mask packs a powerful punch. Designed to encourage the public to cover up to slow the spread of COVID-19, the mask represents one of life’s deep challenges – evaluating and reacting to danger to stay alive. These choices are in sharp focus after a novel infection appeared in a region of China and spread to almost every continent within a few short months.

As any historian will know, it is a pattern on repeat. For centuries, different pathogens have emerged, disrupted society and unsettled their human hosts. In some cases, millions have died, and the details are etched into cultural history.

Despite huge advances in modern medicine, the world is far from free of infectious disease today. The World Health Organisation (WHO) identified 1,483 events of widespread infection in 172 countries between 2011 and 2018.1

The data clearly refutes the idea circulating in the 1960s that medical progress would knock pathogens on the head.2 Instead, at least half the world’s population live with no access to essential health services.3 Elsewhere, widespread use of antibiotics has led to an increase in antimicrobial resistance, and it is widely appreciated that antivirals are not a panacea.

Figure 1: History of pandemics
History of pandemics
Source: Visualizing the History of Pandemics, Visual Capitalist, March 14, 2020

“A new HIV, a new Ebola, a new plague, a new influenza pandemic are not mere probabilities,” WHO warned, well before COVID-19.4

Health risks in complex ecologies

Globalisation is a key contributory factor, according to Ian Goldin, a professor at the University of Oxford and former vice president of the World Bank. As societies have become more open, complex and interwoven, pandemic risk has been amplified. It is just one of the inevitable downsides of the rapid flow of physical and human capital across the world, as Goldin’s book The Butterfly Defect points out.5

It was inevitable a pandemic would arise and spread globally very quickly

“It was inevitable a pandemic would arise and spread globally very quickly,” Goldin says. “The factors that create pandemics were all in place. The consumption of meat (wild meat in particular), animals living in close proximity to humans, poor sanitary conditions near airports and so on, just increased the probability.”

Goldin also has synthetic pandemic risk on his radar – risks that could emerge by design or mistake from experimental laboratories around the world. “The more labs, the more biochemists there are, the cheaper it is for them to engineer and manufacture, the higher the risk of an accident. Just as we had with nuclear, we are past the point at which we can control this risk, because there are so many different equipment manufacturers.”

“Pandemic risk has been significantly underappreciated by financial and corporate sectors, but it is near the top of most national risk registers; certainly the UK’s National Risk Register, managed by the Civil Contingencies Secretariat in the Cabinet Office,” says Rowan Douglas, head of the Climate and Resilience Hub at Willis Towers Watson.

“There was nothing fundamentally surprising about a pandemic hitting. Obviously, the precise attributes of the pathogen, the location and timing of an outbreak – that’s unknown beforehand, that’s variable. But pandemic risk is absolutely foreseeable, and patterns of frequency, magnitude and impact can be analysed, managed and mitigated,” he adds.

So despite numerous warnings, why did COVID-19 seemingly blindside so many governments and companies? Perhaps faith in our medical toolkit and a grounding in western philosophy (which holds that we are separated from nature by our ability to rationalise) have made it easy to ignore that we live in a rich, micro-organic soup bowl.

We do not appreciate fully how the world works and interacts with all the species in it

“We do not appreciate fully how the world works and interacts with all the species in it,” says medical device designer Marc Koska, whose new syringe designed for mass immunisation is being fast-tracked by the US government. “If you weigh all the bacteria and viruses on earth, they weigh much more than all other forms of animal life. Because of our lifestyle now, we are detached from the fact that we are just one part of that complex biological system.”

He adds on a personal level, “we have checked out of being a co-inhabitor on the planet, and think we are the inhabitor of the planet. From a high level, we are not in tune with what we are doing”.

Figure 2: The big picture: Micro-organisms far outweigh human life
The big picture: Micro-organisms far outweigh human life
Source: Yinon M. Bar-On et al, ‘The biomass distribution on Earth’, PNAS, June 2018, VOX

Opportunistic micro-organisms seek out new hosts all the time to ensure their survival. Ultimately, only a handful make successful jumps across species, known as zoonoses, but those that do can cause outsize impacts. For example, an infection from a single primate in central Africa by the HIV-1 virus led to the untimely death of 32 million people.6

“This is not a small subject at the weird fringe of medicine; this is central,” says David Quammen, author of the presciently titled 2012 book Spillover: Animal Infections and the Next Human Pandemic.7 Around one billion cases of disease each year are the result of zoonoses, accounting for most of the troubling new infections.8 Quammen points out recent outbreaks traced to rats (Hanta), bats (Hendra, Ebola), birds (Bird Flu, West Nile) and pigs (Nipah). Some have alarmingly high fatality rates; for Nipah, it is 40 to 75 per cent.9

Quammen believes the spillovers are happening because the human population has outgrown its ecological niche. By moving into virgin or sparsely peopled habitats, there are more opportunities for pathogenic exchange.

Humans are disrupting the ecosystems harbouring so many different types of creature

“More and more, humans are disrupting the ecosystems harbouring so many different types of creature,” he explains. “All our logging, burning, roadbuilding, settlement, killing and eating of bushmeat tend to ‘shake loose’ the viruses from the reservoir hosts, giving them the opportunity to infect humans instead.”

Some of the events that enable transfers are niche and culturally specific. A rite of passage for Cameroonian Bakweri pygmies involves eating chimpanzees, creating a potential crossover for Ebola.10 These details are important; whether the infection burns out or troubles millions depends on the pathogen and the way human societies organise themselves.

As Goldin points out, society’s current organisation – highly connected, dense settlements (44,000 people per square kilometre in parts of South Asia)11, looking to expand – has helped microorganisms mobilise. 

Take COVID-19, potentially spread by tiny droplets in the air just from speaking.12 Thought to have originated in the city of Wuhan in central China, the virus might have made its way in a single human spreader to the city’s international airport, where it could travel onward at over 500 miles an hour. A high-speed exit from one of the city’s three train stations would take the virus into new habitats at around 200 miles an hour. If the carrier made Beijing, there were flights leaving worldwide about once every minute. In a hub like London, the pace might accelerate again; pre-COVID, one aircraft took off every 45 seconds.

Woefully unprepared

In the face of this risk, where infections can cross borders so rapidly, there is a distinct lack of global health oversight. In 2017, for example, 60 per cent of countries had no pandemic response planned.13

“Governments are not very good at responding to threats when the threat doesn’t seem imminent,” says Dr. Robert Glasser, former head of the UN Office for Disaster Risk Reduction (UNISDR) and a visiting fellow at the Australian Strategic Policy Institute. “We had so much warning; repeated calls about bird flu, swine flu, SARS, MERS – there were plenty of false alarms. Governments did spend more money when each of those viruses struck, but very quickly the funding went away, rather than devoting consistent, significant funding to address this scale of threat.”

WHO's tiny budget and dependence on voluntary funding have proved a handicap

Now many are clearly on the back foot. WHO is responsible for pandemic preparedness, but its tiny budget and dependence on voluntary funding have proved a handicap. It has been starved of the skills, technology and resources it needs, according to Professor Goldin. And if the US – WHO’s single largest donor – follows through with its threat to withdraw from the organisation completely, its ability to deliver is likely to be further curtailed.

Meanwhile, the delicate geopolitical environment, with US and China tensions escalating again, makes cross-border co-operation difficult. “It feels as if the tone of the relationship has fundamentally changed,” says Alistair Way, head of global emerging market equities at Aviva Investors. “The channels of diplomacy between the two countries are worse than they have ever been, which does make things harder. That entire relationship is more sensitive to volatility.”

However, international co-operation is desperately needed to manage pandemic risk more effectively. Former CEO of Microsoft Bill Gates believes “billions more” spending should be directed to measures ranging from creating registers of international experts to equipment stockpiling and building public-private partnerships to speed vaccine development.14,15

At the time of writing, some progress had been made, with the vaccine alliance Gavi announcing new incentives, including providing volume guarantees for specific vaccine candidates before licensing to encourage companies to invest in productive capacity. The plan is to make it possible to ramp up production of new treatments faster and improve access for lower-income countries.16

Addressing all the issues would mean significant changes in the pharmaceutical world, including more cross-collaboration between companies and potential inventory building. Some of the main supply issues, like addressing a surge in demand for protective equipment or glass vials, have been on the radar intermittently for more than ten years. To be most effective, the changes will also need to encompass better early warning systems and improving animal welfare in less developed economies – an enormous practical challenge in remote locations.

It is hard to envisage how a comprehensive system can be developed without effective supra-national oversight and collaboration. Issues with transparency (China initially denied human-to-human transmission of COVID-19) and resourcing (the US threat to withdraw funding because it claims WHO is ‘too China-centric’) highlight the governance void. How can an organisation like WHO protect the health of people around the globe if it is not adequately supported?

Governments have not generally given supra-nationals the power to see what is happening in their kitchen

“Governments have not generally given supra-nationals the power to see what is happening in their kitchen,” Goldin says. “I would like to see a NATO-like equivalent of a rapid-response taskforce, which is able to go to any jurisdiction in the world at short notice, isolate and identify a virus, and seal it off. It would require monitoring capabilities, which requires a global agreement in place to make that workable and be able to report the necessary information. None of that has happened, which is one of the reasons risks have increased.”

Chain reactions

While the crisis is still being played out, work has begun to evaluate the policy measures used for disease control – measures of “extraordinary size and amplitude”, according to Professor Didier Sornette from the Swiss Federal Institute of Technology in Zurich. In the first pandemic to hit since the global demographic balance tipped towards the older generation (there are now more people on the planet aged over 65 than under five), stringent lockdowns have taken place. As Sornette points out, “of more than 200 countries, only four have not implemented lockdown measures”.

This is a sensitive area; all policy choices have costs, and it is impossible to evaluate the worth of a human life. Not taking action has implications, in vulnerable lives lost or lower productivity. Confining whole populations to their homes, shutting businesses, throwing millions out of work and running up debts will also weigh on societies for years, so it is important to ask whether these actions make sense.

“Have we been collectively blinded by short-sighted medical considerations and been overwhelmed by a pandemic of fear?” Sornette asks.17

In the worst case, restrictions might need to be re-tightened again, causing more economic pain

“The sensible debate regarding lockdown is how can we use what we’ve learnt about the virus to optimise a set of restrictions, so that we can achieve containment with the least economic pain – and carry through those considerations into the future,” says Ian Pizer, investment strategist at Aviva Investors.

“When considering the timing of easing restrictions, there is a danger of starting too early - it risks slowing the ultimate process of easing. In the worst case, restrictions might need to be re-tightened again, causing more economic pain. Starting too late may also cause economic hardship, but if a few weeks longer could achieve a swifter reopening, then it may be worth it. There is no easy answer.”

Stringency is another important facet to bear in mind. Pizer gives the example of Sweden, which employed less stringent social distancing measures than many others. Its recent data releases suggest its economy will still be severely impacted, perhaps because of lockdowns elsewhere, or because the threat of infection altered behaviour anyway.

“It’s quite possible a stringent lockdown might be economically optimal, if it reduces infection to point at which households and businesses feel risk is low. Ultimately, that could be less painful than experiencing less stringent lockdown measures but higher transmission risk for a longer period,” he says.

Comparing responses is a methodological minefield, as lockdowns have been implemented at different levels of infection, at different speeds and combined with alternative strategies to mitigate disease. There are no clear answers and many long-term costs – associated with deteriorating mental health conditions or delayed oncology treatments, for example – are yet to be revealed.

Mitigating the need for lockdown

One other consideration is that better network analysis, actively using track-and-trace, might mitigate the need for costly lockdowns at all.

South Korea has used surveillance technologies effectively to mitigate the spread of COVID-19, by finding and quarantining patients. At the time of writing, less than 300 people had lost their lives in a country with a population of over 50 million. Compare this with the UK: population 66 million; 40,000 deaths and rising.18

Andrew Lever, professor of infectious diseases at the University of Cambridge, attributes South Korea’s “outstanding” record to extensive testing and the way phone location data, credit card transactions and CCTV footage have been used to build meticulous logs of people’s travels.

So, if someone was positively diagnosed with an infection, all the mobile phone users in their region might be sent a detailed analysis of their movements in the infectious phase. “Patient #8074 – a 21-year-old male and a contact of patient #7923 – went to a 7-Eleven by the entrance to Seoul University from 3:59 to 4:11 a.m. after drinking for two hours at a nearby bar…,” one account reads, before adding those locations have been disinfected.19

Lever believes this is “the only way forward” with a disease like COVID-19. Automated tracing removes responsibility from the spreader to reveal their own health status, but allows others (public authorities, social contacts) to respond.

If you are able to materially reduce the infection rate, the degree to which you require social distancing measures is materially reduced

“Contact tracing clearly has minimal economic consequences. If you are able to materially reduce the infection rate, the degree to which you require social distancing measures, which are more economically damaging, is materially reduced,” says Pizer. “You may need to impose restrictions periodically if you miss a flare-up, but these are likely to be shorter in length and can be targeted at where there are a greater number of infections.”

Such an approach inevitably raises privacy questions – something different cultures have varying degrees of sensitivity to. Perhaps one outcome from this crisis, and South Korea’s success in using data to manage it, is that the bar for anonymising data has been raised.

Implications for investors

One important lesson for investors is how swiftly pandemic risk transmitted into a significant market shock, because of the way in which national governments mobilised.

It may not be the virus itself that determines the scale of the shock, but rather the policy response

“It may not be the virus itself that determines the scale of the shock, but rather the policy response,” says Harriet Ballard, senior multi-asset strategist at Aviva Investors. “If another novel infection were to emerge in the future, we would be looking closely at the requirements for locking down parts of the economy, and the potential mitigation policy, to weigh up the potential impacts.”

Meanwhile, post-pandemic, pharmaceutical analysts are expecting governments to prioritise health spending, which may fuel momentum in 2021 and beyond. Health spending was already growing faster than GDP prior to COVID-19 and may increase further still. Better-placed large-cap pharmaceutical producers, life sciences companies and medical equipment makers might all be beneficiaries. (See Health first: finding resilience in pharmaceuticals for more details, including the possibility of an upsurge in global efforts to immunise.)

The picture will be nuanced by the fact that some activities are likely to be driven by societal benefit, carried out at low or zero margin, as pharma companies put patients before profit in some fields.

Preparing for the next impact

The message from epidemiologists is clear: future pandemics are highly likely. Because of the way micro-organisms reside, because of their immense evolutionary resilience and because of the way we live, they will not go away.

Viruses aren’t smarter than us, they are just singularly focused on reproducing

What we can do, however, is be much better prepared. By understanding the nature of disease and how we link to each other, what the outcome of radical policy measures might be, and the constraints on industrial and health capacity, we will have more effective tools at our disposal to make informed decisions.

“Unless we understand more about how people live, how citizens are experiencing their lives and their work, we will not really be able to understand future health challenges,” says Carol Brayne, professor of public health medicine at the University of Cambridge. “That’s a piece of the jigsaw that has received far less attention in recent years, and that’s where we need to turn.”

Viruses aren’t smarter than us, they are just singularly focused on reproducing. If we put enough of our collective focus and attention towards fighting them, we will have a better chance of returning to some sort of normality.

Would you like to read the whole of AIQ: The Risk Edition?

Subscribe to download a PDF copy or get a printed edition delivered directly to you.

Subscribe today

References

  1. ‘A World at Risk: Annual report on global preparedness for health emergencies’, World Health Organisation, September 2019
  2. ‘Managing epidemics: Key facts about major deadly diseases’, World Health Organization, 2018
  3. Dr Tedros Adhanom Ghebreyesus, ‘Can we create a pandemic-free world?’, World Health Organization, February 12, 2018
  4. ‘Managing epidemics: Key facts about major deadly diseases’, World Health Organization, 2018
  5. Ian Goldin and Mike Mariathasan, ‘The Butterfly Defect’, 2015
  6. ‘Global Health Observatory (GHO) data’, World Health Organisation, 2018
  7. David Quammen, ‘Every new pandemic starts as a mystery’, TEDxBozeman, May 27, 2013
  8. ‘Zoonotic disease: emerging public health threats in the Region’, World Health Organisation
  9. ‘Nipah virus’, World Health Organisation, May 30, 2018
  10. Steve Mirsky, ‘David Quammen: The spillover of animal infections to humans’, The Sciences: Science Talk, Scientific American, November 18, 2012
  11. Bangladesh, United Nations Urban Data
  12. Valentyn Stadnytskyi, Christina E. Bax, Adriaan Bax and Philip Anfinrud, ‘The airborne lifetime of small speech droplets and their potential importance in SARS-CoV-2 transmission’, PNAS, May 13, 2020
  13. ‘Programme Budget 2018-2019’, World Health Organization, 2017
  14. Hannah Balfour, ‘Gavi launches $2 billion COVID-19 vaccine funding initiative’, European Pharmaceutical Review, June 5, 2020
  15. Bill Gates, ‘Responding to Covid-19 — A once-in-a-century pandemic?’, New England Journal of Medicine, April 20, 2020
  16. Hannah Balfour, ‘Gavi launches $2 billion COVID-19 vaccine funding initiative’, European Pharmaceutical Review, June 5, 2020
  17. Didier Sornette, Euan Mearns, Michael Schatz, Ke Wu and Didier Darcet, ‘Interpreting, analysing and modelling COVID-19 mortality data,’ Swiss Finance Institute Research Paper, April 30, 2020
  18. ‘United Kingdom’, Worldometer
  19. Eun A Jo, ‘South Korea’s experiment in pandemic surveillance’, April 13, 2020

Important information

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. This material is not a recommendation to sell or purchase any investment.

In Europe this document is issued by Aviva Investors Luxembourg S.A. Registered Office: 2 rue du Fort Bourbon, 1st Floor, 1249 Luxembourg. Supervised by Commission de Surveillance du Secteur Financier. An Aviva company. In the UK Issued by Aviva Investors Global Services Limited. Registered in England No. 1151805. Registered Office: St Helens, 1 Undershaft, London EC3P 3DQ. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119178. In France, Aviva Investors France is a portfolio management company approved by the French Authority “Autorité des Marchés Financiers”, under n° GP 97-114, a limited liability company with Board of Directors and Supervisory Board, having a share capital of 17 793 700 euros, whose registered office is located at 14 rue Roquépine, 75008 Paris and registered in the Paris Company Register under n° 335 133 229. In Switzerland, this document is issued by Aviva Investors Schweiz GmbH.

In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL) for distribution to institutional investors only. Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material. AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 1Raffles Quay, #27-13 South Tower, Singapore 048583. In Australia, this material is being circulated by way of an arrangement with Aviva Investors Pacific Pty Ltd (AIPPL) for distribution to wholesale investors only. Please note that AIPPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIPPL in respect of any matters arising from, or in connection with, this material. AIPPL, a company incorporated under the laws of Australia with Australian Business No. 87 153 200 278 and Australian Company No. 153 200 278, holds an Australian Financial Services License (AFSL 411458) issued by the Australian Securities and Investments Commission. Business Address: Level 30, Collins Place, 35 Collins Street, Melbourne, Vic 3000, Australia.

The name “Aviva Investors” as used in this material refers to the global organization of affiliated asset management businesses operating under the Aviva Investors name. Each Aviva investors’ affiliate is a subsidiary of Aviva plc, a publicly- traded multi-national financial services company headquartered in the United Kingdom. Aviva Investors Canada, Inc. (“AIC”) is located in Toronto and is registered with the Ontario Securities Commission (“OSC”) as a Portfolio Manager, an Exempt Market Dealer, and a Commodity Trading Manager. Aviva Investors Americas LLC is a federally registered investment advisor with the U.S. Securities and Exchange Commission. Aviva Investors Americas is also a commodity trading advisor (“CTA”) registered with the Commodity Futures Trading Commission (“CFTC”), and is a member of the National Futures Association (“NFA”). AIA’s Form ADV Part 2A, which provides background information about the firm and its business practices, is available upon written request to: Compliance Department, 225 West Wacker Drive, Suite 2250, Chicago, IL 60606.

Related views