The Coronavirus and the Stock Market
If you’ve been connected to the grid at all over the past week, you’ll have seen unnerving headlines about China’s pneumonia-like coronavirus outbreak. The truth is, ‘2019-nCov’ infects new stocks every day. Maybe yours!
Get a quote for shares in Air Canada, down 7% last week. Toronto has become a no-go zone for travelers, having been the Western epicenter of Asia’s previous SARs outbreak in 2002. Forty-four died nationwide, so traumatic memories have gripped holidaymakers and ticket sales to the Great White North.
Mining companies in North America have also taken massive drawdowns since the outbreak. Crescent Point Energy and CONSOL were the worst hit, down 13%, and 9% respectively on fears that Chinese demand for natural gases, oil, coal, steel, and other commodities will fade. These stocks will remain in the red until the germ is brought under control. However, it’s not clear when that will be.
Someone healthy with the coronavirus can go about life normally without symptoms of fever for days, spreading the virus unknowingly to friends, families, and coworkers. Official cases have been reported in the Ivory Coast, France, Australia, and the Cali shores. However, way more unofficial cases exist. That’s forced the closure of every single cinema in China, an extension of the Chinese New Year holiday to hold off mass travel, and more people on lockdown than currently live in Spain. SOS!
Some investors have their money on the virus escalating into an official epidemic (worldwide outbreak), not just a pandemic (local community outbreak).
In such a scenario, shoppers would stay home, and shares in consumer discretionaries would fall. Take note of the world economy’s main support beam as well, consumer confidence. Some countries may revise their monetary policies if the situation worsens, going interest rate-negative to push the public back out into the zombie land to spend!
What more in terms of specific trading opportunities? Short interest in warm jacket retailer Canada Goose has spiked, and food-maker Maple Leaf Goods could benefit from rising pork prices if the virus spreads to Chinese animal products. Investing safe havens like government bonds and gold are going up, counter to American stocks generally!
Profiting from an illness that has killed 56 people and had its fear factor exacerbated by click-greed media outlets might cross the ethical line for some investors. That’s cool.
We’ll find out over the next month whether ‘2019-nCov’ should be a genuine point of concern for long-term investors. For now, it’s a temporary event. What goes down must come up, but there’s alpha to be found across all markets!