The outbreak of the Wuhan coronavirus has dominated headlines and rattled global markets this weekWith Chinese tourism playing an important part in the Australian economy, investors are concerned a ripple effect could damage Aussie stocksAlready, travel and leisure stocks like Sydney Airport, Crown Resorts and Flight Centre have taken a hitBig pharma stocks, on the other hand, have gained this weekNow, investors are looking at retail and dairy stocks with bated breath as Chinese economic activity slows
The recent outbreak of the deadly coronavirus from China has been dominating global headlines this week, and the effect is spreading to Aussie stocks.
The viral outbreak is being likened to the 2003 severe acute respiratory syndrome (SARS) outbreak that spread from China and killed roughly 800 people.
The new strain of the coronavirus was first picked up in Wuhan in late December 2019. Since then, over 400 people have been infected and nine deaths have been reported.
Austalia is benefiting from its isolation in this case, however, as so far only one Brisbane man returning from a trip to Wuhan is suspected of bringing the virus down under. The man is currently in isolation and being monitored closely after showing flu-like symptoms upon his return.
As such, while the Australian stock market has outperformed the world today, the ripple effect of global fears is still leaving a mark on some prominent stocks.
According to Tourism Australia, China was Australia’s largest inbound market for visitor arrivals in 2018. In its June 2019 snapshot, the government tourism agency reported 138 flights per week from China to Australia and 111 flights from Hong Kong.
In light of this, stocks that bring people into the country have taken a hit from the viral outbreak. Even on a day when all ASX sectors soared, travel, tourism, and leisure stocks slumped.
Shares in Sydney Airport (ASX:SYD) slumped to their lowest point since September this week. They suffered a 1.49 per cent decline today, bringing the loss since market open on Monday to 5.08 per cent.
Auckland Airport (ASX:AIA) dropped over two per cent alongside Sydney Airport yesterday. Today, the listed New Zealand airport recouped a portion of the losses with a 0.12 per cent gain, bringing the weekly loss to 1.82 per cent.
Travel agency Webject (ASX:WEB) slumped 0.80 per cent today, dropping to 5.26 per cent since the start of the week. Flight Centre (ASX:FLT) has lost 1.87 per cent today to bring its weekly decline to 6.50 per cent.
Even ferry operator Sealink Travel Group (ASX: SLK) has suffered a 4.82 per cent loss this week.
Similarly, hotels and stocks specialising in tourist accommodation have taken some blows.
Entertainment and hotel giant Crown Resorts (ASX:CWN) has dipped 1.54 per cent today and 3.42 per cent over the week. Similarly, Star Entertainment Group (ASX:SGR) lost 0.25 per cent today and 5.54 per cent this week.
Helloworld Travel (ASX:HLO) is down 2.15 per cent today and 6.94 per cent since Monday.
Big pharma in the spotlight
Of course, as with any global health scare, heads turn immediately to where there might be a cure or prevention.
For the ASX, this means while the Wuhan virus might pose a threat to tourism and travel, biotech giant CSL (ASX:CSL) will be the first stop for a potential vaccine should the virus spread in Australia.
CSL has already been enjoying a bull run over the year on the back of the positive market sentiment, but shares surged higher over the past week to surpass a $300-per-share benchmark for the first time ever.
Today, shares gained 1.37 per cent. Since market close on Friday afternoon, CSL has gained 2.6 per cent.
Stocks to keep an eye on
Tourism Australia highlighted that along with the visits, Chinese tourists are also the biggest spenders of all Aussie visitors, making them one of the most important source markets in the country.
Further to this, Australia ranks third in the world for Chinese tourists seeking food and wine. This means along with restaurants and hotels taking a hit, decreased economic activity from Chinese tourists could impact retail stocks.
Investors should keep an eye on our supermarket giants like Woolworths, Coles, and Metcash, who may take a hit from decreased Chinese activity.
Dairy and infant formula companies are also at risk as economic activity within China slows. Infant formula is a prime target for “daigou” shoppers, who essentially clear out supermarket shelves and sell the products back in their homeland to circumvent import tariffs and high local prices.
On that note, investors should be cautious when treading near daigou specialist AuMake (ASX:AU8), which made a name for itself by working as a dedicated daigou distribution channel. AuMake is threatened more than other listed stocks by the new coronavirus as the business relies heavily upon both local and overseas Chinese activity.
Loud media bark, weak economic bite
Regardless of the hype around the virus, however, at this point in time, it is unlikely to have long term effects on our local economy. With only one suspected case in the country, the Government is stilling fears and assuring Aussie citizens the risk of widespread infection remains low.
Using the SARS outbreak in 2003 as a guide, the Australian economy will likely escape a severe decline. While it’s likely the Chinese economy will hit a slump, it would be unusual if Aussie stocks felt more than a ripple.
Still, as the severity of the outbreak becomes more clear globally, investors are watching the relevant Australian stocks with bated breath.