Just when you thought it was safe to invest in Asia!
Today’s shocker came out of a World Health Organization meeting yesterday where officials estimate 20% to 30% of Asia’s population – or between 448 million and 672 million people will be infected by swine flu H1N1 this season. Hong Kong had their 15th death this weekend and eight more people are in critical condition. 492 new cases were confirmed over the weekend, bringing the official count in Hong Kong alone up to 22,054 infections. According to the WHO: “China may not be in a situation of what we call extensive local transmission, which Hong Kong is in now.” Once it does happen, we can see a lot of severe cases.”
It’s ironic that the G20s efforts to put lipstick on this pig of a global economy may all be derailed by a pig’s disease. Despite skipping testing and relaxing safety regulations (which will, of course lead to other problems) in order to get tens of millions of doses of vaccines out for mass-innoculation programs, the WHO estimates that China, at best, will be able to innoculate just 5% of the population (65M people). We went through our last major swine flu scare last April and, here at PSW, we turned it into a half-dozen very successful picks – so let’s look at a few more who should do well in this next round of the crisis:
SVA is the primary vaccine maker in China and you can buy that stock for $8.88 and sell the Jan $7.50 puts and calls for $4.50, which is net $4.38 with a call away at $7.50 (up 71%) if they hold that level through Jan 15th and the break-even to the downside (where you would be assigned the puts) is $5.94, 33% lower than today’s price. I’m not one to jump on disaster plays usually but this one has pretty good odds.
BCRX has Perimavir in late-stage trials and the FDA is considering a “pre-emergency use authorization review,” of the drug, which would be great for BCRX if it goes through and bad if it doesn’t. As BCRX is already up a lot, the way I would play this one is buying the 2011 $10 calls for $4.10 and selling the 2011 $12.50 calls for $3.60, which is a net .50 entry with a 500% return if BCRX hits $12.50 in 15 months (now $10) and it shouldn’t cause too much damage (perhaps 30%) if things don’t wortk out and they fall…
