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“Fears over an escalation of the coronavirus outside of China have caused a major retreat in global markets and prompted wild swings in commodity prices,” says Russ Mould, Investment Director at AJ Bell.
“Italy’s lockdown, as the country tries to control the worst outbreak of the virus in Europe, has caused investors to panic about how business and society will be affected. A large spike in coronavirus cases in South Korea has also added to market concerns.
“The result is a large sell-off in equities with UK, Europe and Asia deeply in the red. The FTSE 100 fell 2.1% to 7,251 and the FTSE 250 index dropped 1.8%. Euro Stoxx 50 declined 2.7% and Hong Kong’s Hang Seng index fell 1.8%. Oil prices slumped 3.2% to $56.64 per barrel.
“Only four stocks were in positive territory on the FTSE 100, being gold and silver miner Polymetal, distribution business Bunzl, media group Pearson and rat catcher Rentokil.
“There has been so much complacency in recent weeks from investors, despite clear signs that China’s economy is facing a large hit and that supply chains around the world were being disrupted.
“Markets initially wobbled in January but had quickly bounced back, implying that investors didn’t see the coronavirus as a serious threat to corporate earnings. They may now be reappraising the situation.
“Interestingly all the supposed safe haven sectors aren’t being as defensive as people might hope. Utilities, healthcare and beverages were all down on Monday, caught up in the broad equity sell-off. The only so-called safe haven asset behaving as expected was gold which jumped 2.6% to $1,686 per ounce.
“Airlines, car makers and luxury goods stocks were among the big fallers on both European and UK markets. TUI, EasyJet and International Consolidated Airlines were among the biggest fallers on the London Stock Exchange, perhaps implying that investors are fearful that consumers and business people may lose their appetite to travel.
“We’re not that far away from a busy period for the travel sector as a large number of people like to go away at Easter time. Travel companies will be praying that the virus is contained as quickly as possible.
“Italian bond yields jumped after the coronavirus spread over the weekend in the country. Italy’s FTSE MIB equity index slumped 4.2%, wiping out nearly all of its gains year-to-date.
“Despite all the bad news, it was interesting to note that China’s Shenzhen index was up 1.3% with telecoms, technology and healthcare the best performing sectors."
Associated British Foods
“The ongoing threat from coronavirus stalks the first-half trading update from Primark-owner Associated British Foods.
“For now its discount clothing chain is unaffected by the outbreak but stockpiling ahead of the Chinese New Year will only take the company so far.
“Guidance for Primark’s profit to be down in the first six months of its financial year, despite an increase in revenue, is a reminder of the tight profit margins for this part of the business and how important it is to maintain volumes.
“This makes the Chinese supply chain risk a potentially serious one. The company and its shareholders will hope proposed contingency plans, including stepping up output from suppliers in other regions, are effective, should they be required.
“There are encouraging signs for Primark’s expansion in Europe but another factor to watch with the coronavirus is the extent to which its spread affects retail footfall. Primark is heavily reliant on getting shoppers through the doors as it has a minimal online presence.
“For now the health crisis is affecting the more unsung parts of the group like bakery ingredients, milk flavouring brand Ovaltine and agri-food which are operating at reduced capacity in China.”
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