Week in Review: Market panic over coronavirus

Amid fears the coronavirus could have the same impact on the world economy as the financial crisis the FTSE 100 was on course for its worst weekly drop since the Eurozone debt crisis in 2011. On Thursday (27 February) alone the index was down 3.5% at 6,796.33. 

Next week kicks off on Monday (2 March) with purchasing managers’ index (PMI) data on the Chinese manufacturing sector (see Economic update). Tuesday (3 March) sees the release of Eurozone inflation figures. On Wednesday (4 March) US PMI data is out along with an estimate of Australian GDP. Given its proximity to China, the Australian economy will have been particularly vulnerable in the initial stages of the coronavirus outbreak although these won’t be reflected in these 2019 fourth quarter figures. Next Thursday (5 March) oil producers’ cartel OPEC will meet under pressure to curb output in an attempt to prop up slumping oil prices. The influential US non-farm payrolls release is published on Friday (6 March).

The travel sector has been in the spotlight this week as investors assess the possible impact of the coronavirus. Shares in airlines and package holiday providers have been slammed with TUI (TUI), EasyJet (EZJ), Wizz Air (WIZZ), OnTheBeach (OTB), Ryanair (RYA) and Jet2-owner Dart Group (DTG) all down 20% or more. The market is clearly worried about the rapid spread of the virus in Italy and the potential impact on bookings for summer holidays. Those fears were exacerbated further on Tuesday (25 February) when a Tenerife hotel used by TUI and Jet2 was quarantined, with four cases of coronavirus identified. Airline body the International Air Transport Association (IATA) had already predicted that demand for air travel would fall for the first time in a decade with airlines standing to lose as much as £23.7 billion in revenue thanks to the outbreak. There has been no detailed guidance from UK-listed airlines on the impact. This is understandable given the level of uncertainty around how the coronavirus will progress but the market is clearly already factoring in a substantial hit to revenue and profit.

Although fears around the coronavirus have moved beyond China, it remains the epicentre of the health crisis with by far the largest number of reported deaths and cases. Manufacturing PMI data next Tuesday (3 March) is likely to show how severe the impact has been on Chinese factories amid extended holidays and the widespread shutdowns of workplaces and transport.

Bonds are often seen as a good place to invest at times of market turbulence. It is difficult for retail investors to gain direct exposure to the bond markets but funds can be a potential answer. BlackRock Sterling Strategic Bond Fund (GB00BZ6DDM04) is one example of a diversified bond fund.

Investors can track the gold price, with the precious metal often a safe haven during periods of volatility in the financial markets, using exchange-traded products. Xtrackers Physical Gold (XGLD), backed by actual gold bullion, has an ongoing charge of 0.25%.

Company announcements

3 March – Food-to-go firm Greggs (GRG) had a stellar 2019 as interest swelled in its vegan sausage roll product. The downbeat reaction to the company’s positive Christmas trading update shows it may have a harder job of matching elevated expectations in 2020, so the guidance which accompanies 2019 results will be closely monitored.

5 March – Free-to-air broadcaster ITV (ITV) is trying to reduce its reliance on volatile TV advertising revenue by expanding in areas like TV production and subscription based streaming services. However, full year results seem likely to be accompanied by warnings about ad spending given the knock to wider economic confidence delivered by the coronavirus.