The consequences of a global flu pandemic could be so dire that business should support the medical community’s preparations, and investors should consider the effects on their portfolios, warns BMO Nesbitt Burns in a new report.

The report, co-authored by Don Coxe, global portfolio strategist at BMO Financial Group, and Sherry Cooper, executive vice-president at BMO and chief economist for BMO Nesbitt Burns, primarily contemplates the threat of an epidemic originating in Asia.

“Simply put, experts, including the World Health Organization, fear an outbreak of a lethal pandemic of flu. It could break out anytime within the next few months or years in Asia and spread across the world,” warns Coxe. “They are adamant that the question is not if, but when. If the disease were as vicious as the Influenza Pandemic of 1918, deaths worldwide could reach or exceed 50 million, even if a successful vaccine were developed and distributed.”

This would be the first pandemic since East Asia became integrated into the global economy, notes Coxe. He points out that Asia already has a full-blown epidemic among birds, “if it is hit with a human epidemic, even in just one or two communities, then a global pandemic would probably be only days away,” he writes. And, “When that happens, financial markets could prove as vulnerable as unvaccinated humans.”

While the 1918 event doesn’t offer much insight as to market reaction, Coxe predicts, “A runaway pandemic would hit commodity prices especially hard. The combination of collapsing demand from China and India and the likelihood of a collapse in demand for housing and cars in the OECD nations would mean prices of base metals and steel would plunge, probably reversing their entire post 9/11 rally. Oil prices would also plummet, because of the ending of the China boom and because of the sudden reduction in the number of consumers in the OECD. There would be no rush into precious metals from other financial assets, if only because high global death rates would mean large scale estate liquidation of jewellery.”

“Income and profitability of businesses of all kinds would suffer. Financial institutions would be under enormous pressure to sustain their services, due to employee absenteeism and chaotic financial markets,” he adds.

To prepare for this possibility, Coxe calls on business to help the world medical community. “Y2K triggered a worldwide response, and the expenditure of more than $100 billion. The business community, believing its own survival was at stake, did everything the experts asked, based on those experts’ appraisal of the risks. Maybe a significant proportion of that effort and expense was wasted, but the desired result was achieved — not even a glitch. Shouldn’t the business community get engaged once again?”

Cooper echoes that call, noting, “It is for others to decide the likelihood and severity of the next pandemic. What Don and I have concluded is that the economic and societal effects of a pandemic, even a moderate one, are so severe that businesses and consumers need to join the medical and scientific community in creating a crisis prevention and management plan. Investors and business leaders must be aware of the risks and factor them into their strategic planning.”

“If nothing else, we hope to raise the consciousness of citizens around the world in an effort to support the urgent endeavors of the public health and medical professionals. Governments must take the lead in providing funding to all regions of the world, particularly the poorest nations of Asia,” Cooper adds. “In today’s world, the economy is borderless and so are public health and terrorism risks. Forget the ‘each-man-for-himself’ psychology of protectionist and anti-globalization rhetoric. Like it or not, we are all in this together, and we are all dragged downward by the weakest links.”

“Cash, put options on volatile stocks, high-quality bonds, and high-quality dividend-paying stocks of companies with minimal exposure to the risks we have described will be the best survival packs,” Coxe suggests. “They will provide the survivors of the pandemic with the capital to take advantage of the wide array of cheap assets that will — however temporarily — be available after the virus has joined its predecessors in whatever resting places the world has on offer.”