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Coronavirus & investing: Risk Velocity, Emerging Opportunity?

Jon Brown Jon Brown, Stockhouse
0 Comments| February 4, 2020

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(Stock photo.)

A record-breaking start to market activity on Bay Street and Wall Street has been cut short and fingers point the blame on the outbreak of the latest type of coronavirus, which has now become a global health emergency.

This outbreak has probably inspired three questions among investors:

  • Does the virus affect markets and if so, how?
  • Is this virus worse than others?
  • Are there emerging opportunities?

There is also the “What is the coronavirus?” question that likely pops up under the category “too afraid to ask”, as well. In summary the Wuhan coronavirus that is the focus of this media attention is still largely unknown, according to the World Health Organization, from its properties to point of origin, experts are still trying to figure it out. Even so, the disease has spread rapidly - Originating from the Chinese city of Wuhan, it has infected more than 8,000 people worldwide and killed at least 774.

Now, onto the other three questions ….

Does the virus affect markets and if so, how?

The spread of coronavirus has had implications across a number of markets. With confirmed cases in the United States and Canada, global travel has been impacted, especially to and from China and neighbouring regions. The US State Department had issued a travel advisorystating that people should “reconsider travel to China” and the Center for Disease Control issued a warningagainst “all nonessential travel to China.”

Air travel, both for business and pleasure, is essentially a no-go. Share prices among many airlines around the world have already lost around 13% this month related to concern of their exposure to the Chinese market.

The Lunar New Year was extended which put China’s stock market on hold. Corporations working directly in China are all but quarantined - cancelling obligations and closing facilities.

Starbucks (NASDAQ: SBUX) - In its latest earnings announcementsaid more than half its 4,292 locations in China were temporarily closed because of the outbreak.

McDonalds Corp. (NYSE: MCD) -Closed all of its locationsin the province temporarily. CEO Chris Kempczinski said that China represents 9% of global restaurant count but only between 4% and 5% of sales and 3% of operational income.

Walt Disney Co. (NYSE: DIS) - Temporarily Closedtwo of its theme parks- Hong Kong and Shanghai. Global revenues of the theme parks in the fiscal year that ended on Sept. 28, 2019 were $26.2 billion, or 37.6% of Disney's $69.6 billion total revenue.

Is this virus worse than others?

Evidently, it is. At least according to chief strategist at Principal Global Investors, Seema Shah, who explained in a statement that the risk velocity, or the speed that major market risks have an effect on asset values, is higher this time than it was a decade ago and even greater than the last well-known outbreak - SARS.

Are there emerging opportunities?

Despite what was just written earlier in this article, the fears around airline company shares might also open the door to some quick uptick in prices. A so-called short interesin shares has risen recently as speculators place bets that market values would head lower as the news could get worse before it gets better.

Meanwhile, drugmakers and therapeutics providers in the US are shipping medicine to health authorities in Chinato assess if they could help to contain the spread of the virus.

These companies include:

Since there isn’t much known about the Wuhan coronavirus yet, it isn’t known whether any of their medicines would be of any use.

History repeats?

A recent study from Ned Davis Researchfound that the best buying opportunity for a stock market worried about a global pandemic comes right when the World Health Organization declares a global emergency, which is just what happened. Could this be the time to make move and has the coronavirus impacted your investments? Let us know in the comments below.

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