President Trump’s decision to suspend all flights to and from Europe for the next 30 days has moved the coronavirus crisis to a whole new level in which fear, panic and suspicion will do more damage to the markets than the actual disease.
The decision has signalled potentially a higher level of panic than investors were prepared for, even though the central banks have been signalling that there is a lot of cause for concern by bringing in anticipatory emergency rate cuts. But even those support packages will not be enough to maintain the normal flow of new projects, acquisitions and expansions that are the life blood of any industry. Instead, uncertainty and fear will make sure that all those are put on hold for at least a month if not longer.
In the game of virus versus the world, timing is the key factor. The two countries that have been the worst hit, China and Korea, have started returning to normal within less than two months. Also, with warmer weather around, the virus is likely to start dying out just like other flu-like diseases. So here is how investors can play this market over the coming weeks.
Losers
- Travel and hotels
- Property firms
- Luxury goods, cars
- Insurers, banks
- Oil firms
The most obvious losers are the ones already topping the FTSE fallers’ list: airlines, cruises, travel agents, hotel chains and tour operators. The tourism industry is suffering not only from the flights that are currently being suspended but is also looking at a month of pain ahead as block bookings for Easter and May holidays are being cancelled. And with pictures of the travellers stranded on the Diamond Princess circulating everywhere, it would take a brave person indeed to book a cruise holiday now. The obvious defense stock here would be railways, particularly those carrying cargo but in Europe there are very few listed railway companies. In the North America the most prominent ones are Union Pacific (NYSE:UNP), Kansas City Southern (NYSE:KSU), BNSF, Norfolk Southern (NYSE:NSC), Canadian Pacific and Canadian National.
The uncertainty over how bad the fallout of the virus will be will cause most big ticket items purchases to go on hold, thus hitting house sales, car sales and luxury goods. For supermarket chains the fallout will be mixed. Retailers are already stocking up on essential goods like toilet rolls, nappies and tinned food but this will will happen at the expense of the more expensive items like fresh meat and alcohol.
With not only flights suspended but also big events like concerts, football matches and conferences being cancelled, insurance claims are set to rise, eating into insurers’ profits over the coming quarters. Banks will also be come under pressure as companies will struggle to repay loans because of slowing business. Although the support packages in the UK budget, from governments in Europe and planned tax cuts in the US, will go some way to alleviate the pain it is more likely to stop business from going under completely rather than actually guaranteeing growth.
Oil firms are also in a fragile position, already under pressure because of declining demand from China and because of Saudi Arabia’s plan to pump more oil from April. Add to this a messy spat between OPEC and Russia unlikely to be resolved very quickly and the diminishing demand for jet fuel because of all the cancelled flights and the outlook for oil majors starts looking fairly bleak.
Gainers
- Remote working providers
- Pharmaceutical firms
- Online learning
- Food delivery
- Delivery services
- Online gaming
From the Chinese experience and the experience in Italy the companies that continue to be in demand even in a situation of a lockdown are delivery firms, be it food delivery such as Just Eat (LON:JE) Takeway.com and Uber (NYSE:UBER) Eats, or parcel and online shopping sites like Amazon (NASDAQ:AMZN).
Pharmaceutical firms and medical providers will also be of interest, not only by way of finding a solution in the shape of vaccination but also in terms of making large scale testing possible and processing results from thousands of patients. The interest in a vaccination and large scale testing will not die out even after the coronavirus peters out because the scare will have raised the level of awareness of a risk of potential future outbreaks.
Software and technology firms, those that offer remote work and remote learning will be of particular interest. In the US Cisco (NASDAQ:CSCO), Google (NASDAQ:GOOGL), LogMeIn Microsoft (NASDAQ:MSFT) and Zoom are making remote working tools available for free now with a view to keeping market share later.
With universities across Europe closing down and secondary schools prepping for online lesson delivery, online education providers and software firms that provide secure access will be of interest. And finally online entertainment – film, music and online gaming. With all that extra time at home online gaming will be in demand, benefiting the likes of Sony, California-based Activision Blizzard (NASDAQ:ATVI) and Nasdaq listed Chinese firm Net Ease Games.
"Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.
Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions."