Fears over coronavirus outbreak cause shift in markets

Fears over coronavirus outbreak cause shift in markets
Source: Baron’s

On January 27, more than 97% of stocks in the STOXX Europe 600 were trading in the red – meaning the stock price closed lower on that day compared to the previous day’s close – with many plunging from record highs. A total of $198 billion (€180 billion) of market capitalization was lost.

The STOXX Europe 600 index experienced its worst one-day fall recorded since August of last year, falling 1.7% to 416.48 on January 27. The French CAC 40 index dropped 1.9%, the German DAX 30 fell 1.9% and London’s FTSE 100 was down by 2.1%.

The weak market performance was largely driven by the recent mainland China epidemic of the coronavirus which has left 106 people dead.

A drop in luxury, airline and mining industries – industries that have the highest demands from Chinese consumers – contributed significantly to the decline in market performance.

Luxury stocks lose

When news of the coronavirus outbreak broke last week, major luxury players in Europe lost more than $50 billion in market value. Luxury stocks – heavily-dependant on Chinese demand such as Louis Vuitton Moët Hennessy (LVMH), Christian Dior, Hermes and Gucci owner, Kering – fell more than 3% in the third week of January. Burberry Group Private Limited Company (PLC), Moncler Società per azioni (SpA), Swatch and Richemont stocks all fell somewhere between 2.7% to 4.6%.

According to experts, market players did not consider a pandemic when weighing risks. “Markets had been vulnerable to an eventual correction given signs of exuberance such as strong price momentum, high valuations and overweight positioning, but a pandemic is rarely on anyone’s list of negative catalysts,” John Normand, head of cross-asset fundamental strategy at JPMorgan, told Reuters.

Travel stocks drop

China is the world’s second-largest economy and its decision to ban travel has caused stocks related to airlines to sharply decline. Airport retailer Dufry Aktiengesellschaft (AG) experienced its steepest one-day drop in more than a year.

Aviation companies Air France, Lufthansa and British Airways owner International Airlines Group (IAG), cruise line operator Carnival Corp, hotel group Accor and InterContinental Hotels Group (IHG) have all taken a hard blow to their stock value as Europe’s travel and leisure index dropped to its lowest in nearly two months.

Mining stocks suffer

Copper prices have dropped to a three-month low, consecutively falling for nine days. Panic-selling has also affected other industrial metals.

Gold and bonds rise

However, gold prices and bonds rose, as traders are seeking to place their stakes in safer investments.