It has been suggested that recent falls in global stock markets are linked to the Ebola tragedy in Africa which has claimed almost 4500 lives and is certain to result in many more deaths before the outbreak is brought under control or burns itself out. It is unlikely that hard-headed investors will be swayed by this epidemic which has affected a relatively small number of people in Africa and only a handful of individuals in the rest of the world (all with primary or secondary links to the outbreak). To put it in perspective, it has been claimed that more people die in sub-Saharan Africa every three months due to malaria, than the 200000 + souls that were lost in the 2005 Indian Ocean tsunami. The difference between these events is that Ebola is contagious and theoretically could cause a major, global epidemic potentially costing millions of lives whereas the tragic loss of life through malaria or a natural disaster such as a tsunami, is restricted to those directly caught up in it. It is interesting to note that a CDC-led study concluded that between 150000 and 500000 people died, worldwide, in 2009 due to the H1N1 flu virus strain.
The more likely explanation for recent reversals on major global markets is that investors are concerned that weak global demand is slowing further. Weak demand will obviously hit the bottom line of businesses involved in a broad spectrum of production and service activities and inevitably cause stock prices to fall. It could be argued (indeed, many people have already done so) that stock (and other asset) prices have raced ahead of the level that the global economy truly justifies. This, it is argued, is a consequence of the highly accommodative monetary policies in many countries which have sought to boost economic growth by pumping “cheap” money into the economy and by ensuring that key asset (bond) prices are kept in check by providing strong demand for them. Logic would dictate that if you know that an asset is (let’s be kind and not say over-valued) at the top of its value cycle and is likely to drop because of weak demand for it in the local or regional economy, that now would be a particularly fine time to sell it.
Markets are likely to drift lower until stock prices are seen to be bargains again or better economic news filters through which suggests that global demand will be increasing.