Coronavirus market losses evaporate and NMC saga continues as founder resigns

“A rally in Chinese shares and modest gains across the UK and Europe on Monday mean that investors are no longer nursing huge losses as a result of the coronavirus. Markets have been bouncing back in recent weeks to the extent where large losses in January are now a distant memory,” says Russ Mould, Investment Director at AJ Bell

“Chinese shares started the week on a very strong note with the SSE Composite index rallying 2.3% on government stimulus measures to prop up economic growth and ongoing efforts to combat the virus.

“Having experienced a near-10% decline just over a few weeks ago, Shanghai’s key stock market index has bounced back and is now only 2.2% down year-to-date. Some investors may think that is remarkable given the severity of the virus and how it has caused a large amount of human loss and disruption to business and society.

“Japan’s Nikkei 225 index is down 0.6% year-to-date. The index was actually flat up until Monday when new figures showed that Japan’s economy shrank at the fastest rate in five years at the end of 2019, caused by a sales tax rise, a major typhoon and weak global demand.

“UK investors are only nursing a small loss this year with the FTSE 100 down 1.5%. While the coronavirus may not have had a major impact on the UK economy, it will have affected the UK stock market which contains a large number of companies that do business with China and the broader Asian region. In contrast, one of Europe’s key benchmarks – the Euro Stoxx 50 index – is up 2.6% year-to-date.

“US shares continue to motor ahead, including a 4.6% gain from the S&P 500. The best performers include Victoria Secret’s owner L Brands (+34% year-to-date), housebuilder Lennar (+26.1%) and stock market index provider MSCI (+24.9%).”

Major Stock Market Indices - Performance so far in 2020

S&P 500 (US) +4.6%
Euro Stoxx 50 (Europe) +2.6%
Nikkei 225 (Japan) -0.6%
Hang Seng (Hong Kong) -1.2%
FTSE 100 (UK) -1.5%
SSE Composite (China) -2.2%

NMC Health

“The saga at NMC Health continues and so does the suffering of its shareholders. The whole affair is turning into one of the worst stock market disaster stories of recent times.

“It will raise serious questions about how corporate governance issues and overseas listings are handled by the regulators.

“After all, the private healthcare operator is not some pie in the sky small cap. It is, for now at least, a FTSE 100 company. Sadly it is not acting like one.

“Today’s announcement of the departure of founder and co-chairman BR Shetty along with two other directors, caught up in a scandal over share transactions, is unlikely to provide the company with a clean slate and just adds to the sense of chaos around the business.

“The simple fact the company doesn’t appear to know who owns large chunks of its share capital, with some stock pledged as collateral on loans, is damning.

“The move to flag M&A interest from private equity firm KKR looked pretty desperate when it was met by strong denials from the mooted suitor within 24 hours.

“However, a takeover of the company, whose operations presumably have some intrinsic value, looks like the most investors can hope for now.

“Whether a bidder can look past the current issues is highly questionable and any bid would likely be at a level which reflects the mess NMC is currently in.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.

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