Market Recap 2nd March

The coronavirus has mutated yet again; from bats, to humans, and now even the ASX market.

“The risk of a pandemic is upon us.”

Scott Morrison was correct to say that Australia should prepare for a pandemic and we have well and truly felt it this week. Per the All Ordinaries Index, Australian shares have lost over $240 billion in value since last week. The last time we experienced a weekly drop this big, it was during the peak of the Global Financial Crisis (2008). In the space of just one week, the ASX 200 (the benchmark of Australian stock performance) fell from a record closing high of 7,162 last Thursday to 6,441.

‘It’s becoming more global’

As the ASX heads towards a potential “bear market” (where securities prices fall 20% or more from recent highs), this marks the beginning of the market’s “correction period”. Joining other major stock indices worldwide in true global contagion fashion, the ASX is finally being infected by the panic around the coronavirus pandemic. Investor confidence has been shaken and they are reacting by dumping risky assets, negatively impacting growth forecasts of many sectors domestically and internationally.

“Airlines, carmakers and beer companies warn of tough times as coronavirus spreads”

Like many things in life, not all sectors have been affected evenly. Among the biggest losers of the coronavirus pandemic is the aviation industry. Following the precedent set by Qantas last week, Air New Zealand cut more travel routes into Asia and warned the outbreak would cut profit by up to $100m. Flight Centre Australia has also slashed profit forecasts by $50m. This reflects decreased consumer demand for air travel and the imposition of travel bans as flights scheduled between Australia and China have dived 90% from 198 flights last month to just 13 this week.

As global supply chains that are heavily dependent on Chinese industry freeze up, Australian industries have begun feeling the effects. The sharp slowdown in China’s economic activity, one of Australia’s biggest customers of iron ore, has led mining giants BHP and Rio Tinto to express genuine concerns for future profitability resulting from the coronavirus.

Car sales have also been predicted to be down 2.5%, reflecting both decreased consumer demand and disrupted international supply chains. Just last week we saw the “retirement of Holden” in Australia. Will others follow suit?

Internationally, the coronavirus outbreak has even hurt beer sales according to Hong Kong-listed Budweiser Brewing Company APAC (not just Corona beers as you might expect). Temporary closures of breweries in China were enacted as expected sales were forecasted to fall US$285m this year. This reflects the depressed activity of the nightlife channel and restaurants as people attempt to avoid crowded areas.

In other news, the government’s budget position is more than $3.7 billion worse off than Treasury forecast in December. This stems from government revenues being $4.8 billion lower than forecast, with a large part of that coming from lower than expected individual income tax collections. This makes the government’s forecast $5 billion surplus for this financial year a fairly tall order.

References/ further readings