US futures were up sharply overnight as investors attempted to gauge the likelihood of a bounceback from the brutal losses of Monday after coronavirus panic reached Europe. But those gains were erased as markets took stock of growing concerns and tried to find a floor.
Investors had seemed confident that the coronavirus outbreak was contained, with China reporting fewer new cases.
That theory was blown apart with sections of northern Italy in lockdown as authorities scrambled to contain an outbreak near Milan. The UK government has now urged travellers returning from the country to “self-isolate” even if they do not show any symptoms of the virus.
Northern Europe is bracing for the shock.
The Italian outbreak has significantly increased the chance that coronavirus will reach Irish shores, the country’s health minister Simon Harris said on Monday.
Scotland’s chief medical officer Dr Catherine Calderwood has commented today that the UK government and the NHS were looking at containment options to limit the spread of infections if the virus is discovered on British shores. These include following the Italian example of banning people from gathering in large numbers, for example at football matches and church services.
Over 80,000 cases of Covid-19 have now been confirmed as the infection has spread to 36 countries worldwide. The vast majority are in mainland China, which has reported 2,663 deaths from 77,658 cases. South Korea has now reported 893 cases, the largest outside China, with eight deaths. Public health officials are confronting the possibility of all manner of extreme situations. Johns Hopkins University has developed a live coronavirus case tracker showing the spread of the infection.
Updates on Tuesday morning suggested residents at a Tenerife hotel in the Canary Islands off Spain’s Atlantic coast were being tested and the immediate area was under quarantine.
The spread of the outbreak to southern Europe, along with a spate of new cases in Iran, South Korea and Japan roiled markets on Monday’s opening. The Dow Jones Industrial Average tumbled 1,031 points, its third-worst single-day drop in history, to settle at 27,960.80.
The news could even spell deep trouble for Donald Trump. The US president has based his popularity on a booming stock market and fears heading into November’s 2020 Presidential race with a shaky stock market. The president tweeted on 24 February: “The coronavirus is very much under control in the USA. We are in contact with everyone and all relevant countries. CDC & World Health have been working very hard and very smart. Stock Market starting to look very good to me!”
Which companies tumble?
It was assumed that those businesses likely to be worst hit in the short to medium term were those with significant exposure to China – perhaps those with a manufacturing base in the country.
Apple (NASDAQ:AAPL) was the first major US company to note a financial impact from coronavirus, saying on 17 February that it would cut sales expectations for Q2 and that “worldwide iPhone supply would be temporarily constrained”.
The tech giant is considered a bellweather for global growth, and the closure of its stores in China signalled concern that supply chain issues could put a dampener on perceived economic recovery throughout 2020.
However, Bloomberg reports today that 29 of 42 Apple Stores have since re-opened.
Companies with a strong reliance on tourism could be worst hit in the medium term.
A 20 February report by the International Air Transport Association (IATA) noted that airlines worldwide could take a $30 billion hit in 2020 passenger revenue from the spread of coronavirus as countries lock down borders and holidaymakers delay travel plans.
The share price of carriers like British Airways-owner International Consolidated Airlines (LSE:IAG), TUI (LSE:TUI) and EasyJet (LSE:EZJ) has suffered badly in recent weeks.
The IATA added that comparing the economic impact of the 2002 SARS outbreak could vastly understate the situation, because China in 2020 forms a much greater contribution to the world economy than it did 18 years ago.
Across that time, China has increased its share of the world economy from 4% to 16%, improved its share of global tourism and travel from 5% to 18% and increased its share of global manufacturing from 10% to 39%.
Along with flights to safety like easy-access gold ETFs, Bitcoin and physical gold, investors are turning their attention to more defensive long-term stocks in telecoms, utilities and pharmaceuticals, with significant trading volume spikes in FTSE 100 companies like National Grid (LSE: NG), Astrazeneca (LSE: AZN) and GlaxoSmithKline (LSE: GSK).
More sophisticated investors who have been conditioned to buy the dip will likely see opportunities to load up on their favoured stocks and shares.
The bottom line
In an interview with CNBC, value investing giant Warren Buffett urged investors to take a sanguine approach and think about the long view.
“You don’t buy or sell your business based on today’s headlines,” he said. “If it gives you a chance to buy something that you like and you can buy it even cheaper it’s your good luck.” Coronavirus was a tragedy, he said, but it had not impacted at all on Berkshire Hathaway’s long-term outlook.
Humans are, after all, amygdala-led creatures. That means that we are likely to take more notice of anything that stimulates fear. The billionaire’s classic advice to “be greedy when others are fearful” could not be more useful right now.