The risk of a bird flu pandemic hitting the world this year is rising – and it could cause a notable fall in global stock markets, according to a new research project based on market surveys.

If avian flu spreads across 60 countries this year, the losses to the Dow Jones Industrial Average might be as a high as 10 per cent, according to analysis from Thomson Financial and the World Economic Forum.

This implies that avian flu now presents one of the biggest risks to the behaviour of stock markets this year, potentially larger than the threat posed by a terrorist attack, the researchers conclude.

“This may seem counter-intuitive, but we think that bid flu would have a bigger impact [on stock markets] than a terrorist attack,” said Thomas Aubrey, investment management director at Thomson Financial, who cited Middle East instability as another potentially serious threat.

The comments come as the WEF is stepping up its efforts to analyse risks confronting the world economy. Indeed, the question of global risk will be a key theme at this year’s meeting, to be held in two weeks time in Davos, due to rising corporate concern about geopolitical dangers.

Until now, there have been relatively few efforts to quantify the scale of modern geopolitical risks, let alone price these dangers. However, the WEF project polled almost 1,000 traders and asked them to offer theoretical “prices” for the risk of certain events occurring – and then predict the likely market impact of this.

At present, according to this analysis, the market expects that 22 countries will suffer from bird flu this year, which would depress the Dow by 0.4 per cent this year.

However, if bird flu spread to 60 countries, the researchers believe this would reduce the Dow by 10 per cent. “What this project does is allow people to put a price on risk – the value is that we think that markets are smarter than individual experts [in assessing risk],” said Jesse Fahnestock, of WEF.

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