Coronavirus: what stocks and sectors are impacted?

How is the coronavirus impacting stocks?

The biggest impact has been felt in China but the country’s pivotal role in the world economy, twinned with fears that the virus will cause a significant slowdown, means this has spread worldwide.

There are two types of companies that are among the worst-hit by the outbreak so far. These are companies that either generate material sales or source a substantial amount of supplies from China (or both). China is the world’s factory and the country forms an integral part of the supply chain for all sorts of industries, so the fact the coronavirus is crippling the economy and workforce there means this is having a huge impact on businesses around the world. Travel, leisure and hospitality stocks have also suffered.

We have a look at how the coronavirus is impacting stocks and sectors from around the world:

Airlines

The International Air Transport Association, the global trade association for the airline industry, has warned that Asian airlines could lose up to $27.8 billion in revenue because of the coronavirus and has forecast a 13% year-on-year (YoY) fall in passenger numbers. There will be a smaller hit of around $1.5 billion to airlines outside the region. However, the impact on global airline stocks could worsen as the outbreak spreads.

Numerous airlines have said they will be hurt by the restrictions on travel. European operator Air France-KLM and Australian airline Qantas are among those that have said earnings will be lower as a result. Cathay Pacific, the main carrier of Hong Kong, has said its results will be down ‘significantly’ in the first half (H1) of this year.

Cruise operators

Cruise ships are playing a particularly negative role in the outbreak after the Diamond Princess vessel, owned by Carnival, was quarantined in a Japanese port after the virus swept the boat. Several other cruise ships have also been refused permission to dock in numerous countries over fears that it could spread the virus further.

Carnival has said all cruises in China have been suspended and that it expects cancellations throughout Asia. It said, in the worst-case scenario that it would have to suspend all its Asian operations until the end of April. – ‘While not currently planned’, it– would hit earnings by 55 cents to 65 cents per share. ‘The company believes the impact on its global bookings and cancelled voyages will have a material impact on its financial results which was not anticipated in the company's previous 2020 earnings guidance,’, Carnival said earlier this month. It plans to provide a further update when it releases its first quarter earnings in late March.

Other operators have had to cancel cruises too and said earnings will take a significant hit this year, including Royal Caribbean and Norwegian Cruise Line Holdings, which echoed warnings from Carnival that an even bigger hit should be expected if the current situation continues beyond the end of April.

Shipping companies

Shipping companies are also seeing a slowdown as there are fewer goods being produced in China to distribute around the world. Container giant Maersk has said it is less certain what to expect in 2020 as a result, suggesting its guidance for the year could be vulnerable. ‘It is still early days to measure the overall impact, however, the weekly container vessel calls at key Chinese ports were significantly down compared last year during the last weeks of January and the first weeks of February. Freight rates are expected to decrease due to dropping demand for containerised goods transport,’ Maersk said. Global shipping firm Clarkson has noted the slowdown in the market but has not yet released a statement warning of the impact it could have on the business.

Carmakers

China is a key part of the global supply chain for carmakers and a major market for sales. This means the outbreak is not only set to hit sales of cars in the country but also cause a slowdown in the supply of parts. A number of carmakers have warned of both.

Toyota, the second largest carmaker in the world, warned that sales in China will be impacted, and said it was looking at how it can mitigate the risk of being left short of the parts it needs. Hyundai and PSO Groupe have also said the coronavirus could disrupt their supply chains. Fiat Chrysler, Hyundai, and Toyota have also warned the virus is disrupting their businesses.

Luxury goods makers

Several big-name luxury goods brands have suffered from the coronavirus outbreak. Burberry, which makes 40% of its sales in Asia, has had to close stores in China and Hong Kong, and said those that have remained open have seen lower footfall. It said spending by Chinese tourists abroad – the biggest holiday spenders – had been limited so far but that it expected it to worsen. Burberry’s financial year runs until the end of March, so the outbreak looks likely to hamper results both in the final months of the current year and the early stages of the new one.

Similarly, French beauty company L'Oreal said the coronavirus is weighing on sales in Asia, which accounts for about 30% of its revenue and is a major driver of growth. However, it said, based on how past viruses have panned-out, like SARS, that it expects to bounce back strongly and to continue outperforming the wider beauty market this year.

Banks

Banks are stocks to watch as the outbreak slowly brings economies to a halt. If people cannot travel and work then this leaves the banks with customers unable to pay their debt, top -up savings or anything else. It ultimately raises the amount of bad debt they have on the books, lowers income, and takes longer to reap profits from customers. The share prices of Chinese banks like Industrial & Commercial Bank of China and China Construction Bank have fallen sharply since the outbreak started to pick up pace in late January – but this could easily spread to other banks outside the region. For example, London-listed HSBC, which makes the bulk of its profits in Asia, has already warned the virus could impact its results this year.

Apple and Samsung

Apple said at the start of February that it had closed all of its 42 stores in China, as well as its corporate locations, in response to the coronavirus. It has since released an update that said work in China was starting to resume but said this was ‘a slower return to normal conditions than we had anticipated’. As a result, it said it would not meet its guidance for the three months to the end of March because ‘iPhone supply will be temporarily constrained’ – with the majority of them made in China – and because sales have been affected in China as expected.

Hon Hai Precision, one of the largest providers of electronics in the world and a major supplier of Apple, said on 8 February that ‘we have not received any requests from our customers on the need to resume production earlier’. The company, better known as Foxconn, followed that up on 20 February with a warning that there would be an impact on earnings this year.

Other smartphone and tech makers have also been swept up in the outbreak. The Financial Times reported Samsung has been flying electronic components for its latest Galaxy phones from China to its factories in Vietnam to try to mitigate the impact.

Sony and Nintendo

Sony, the maker of the PlayStation 4, recently raised its guidance for its current financial year, but said this has not taken any impact from the coronavirus into account. As a result, it warned that the impact of the virus ‘could be large enough to eliminate the entire amount of the upward revision’ to its guidance. ‘We think there could be a major impact on our manufacturing, sales and supply chain operations, said Sony. The firm said it would update the market if it discovers that its guidance and expectations are indeed at risk because of the coronavirus.

Nintendo also warned that supplies of controllers and certain accessories could be delayed. The timing could also hit early sales of the Nintendo Switch in China considering it was only launched in the country in December.

Disney

Disney has temporarily closed its theme parks in Shanghai and Hong Kong, which and this will impact its results over the short-term. ‘The current closure is taking place during the quarter in which we typically see strong attendance and occupancy levels due to the timing of the Chinese New Year holiday,’ said Christine McCarthy, Disney’s chief financial officer.

Nike, Adidas and Puma

Athleisure firm Nike said around half of its stores in mainland China have been closed and that those still open are operating reduced hours and experiencing lower footfall than normal. ‘In the short term, we expect the situation to have a material impact on our operations in Greater China,’ said Nike in early February. Greater China accounts for 17% of revenue and is by far its fastest-growing region.

Adidas has also had to shut stores in China and has warned that sales in the country had plummeted as a result. Peer Puma said ‘business in China is currently heavily impacted due to the restrictions and safety measures implemented by the authorities,’ adding that ‘business in other markets, especially in Asia, is suffering from lower numbers of Chinese tourists’. Both have said it is too early to judge the total impact, but both are suffering regardless.

Starbucks and McDonalds

Coffee house Starbucks recently said it had decided not to revise its goals because of ‘the dynamic situation unfolding with the coronavirus’. China accounts for about 10% of total sales and Starbucks has had to shut numerous stores in the country.

Fast food giant McDonalds has also had to shut hundreds of restaurants in China, which accounts for about 5% of its global sales.

Diageo

Diageo, the alcohol maker, warned when it released its interim results at the end of January that it was expecting a hit from the coronavirus, and warned on 26 February that it is expecting organic net sales to take a £225 million to £325 million knock in the financial year that runs to the end of June 2020. That will filter through to organic operating profit, which is expected to be negatively impacted by £140 million to £200 million.

The restrictions on travel in Asian countries, particularly China, means there have been fewer public events and that people have been socialising less, resulting in a drop in alcohol sales. The majority of its sales in China are made to bars and restaurants, most of which remain closed. Diageo said ‘it is difficult to predict the duration and extent of any further spread of the COVID-19 outbreak both in and outside of Asia’ but currently expects sales to start recovering between March and June.

Mastercard

Payments firm Mastercard has warned ‘cross-border travel, and to a lesser extent cross-border e-commerce growth, is being impacted by the Coronavirus’ and lowered its guidance as a result. It said if the current trend continues, then it expects first quarter net revenue to grow two to three percentage points lower than it previously forecast.

‘If the impact is limited to the first quarter only, we expect that our 2020 annual YoY net revenue growth rate would be at the low end of the low-teens range, on a currency-neutral basis, excluding acquisitions. We anticipate giving further updates on our first-quarter earnings call,’, Mastercard said.

AB Foods

AB Foods, which makes a range of ingredients and owns clothing retailer Primark, has said the impact of the coronavirus has been limited so far. China is a major supply source for the business, but AB Foods said Primark ‘typically build[s] inventories in advance of Chinese New Year and, as a consequence, are well stocked with cover for several months and do not expect any short-term impact.’ It said some of its food factories are operating at ‘reduced capacity’. AB Foods seems to be navigating the waters better than some at the moment, but it looks just as vulnerable if the outbreak lasts beyond the end of the first quarter.