Uneven Impact of Coronvirus; Sectors To Watch
Fiona Cincotta March 25, 2020 12:45 PM
The Fed’s bazooka efforts and record-breaking US fiscal stimulus package haven’t been able to turn the tide in the market; a few more ingredients in addition to monetary and fiscal stimulus are needed before a sustained recovery will be seen. These include:
1. Improving coronavirus numbers, both in Europe and US
3. Confirmation that China isn’t experiencing a second wave as comes out of isolation.
Food Retailers are obvious winners in this situation. Consumption of essential goods will remain high and even increase, as we have seen people stock piling in panic. There are not enough online delivery slots to go around. Supermarkets are even taking on more staff to cope with the increased demand. The Chancellor’s business rates holiday is another bonus for the sector. Sainsbury, Morrisons and Ocado are still worth watching.
Business services are able to continue operations, with more working from home. A more intensive use of web applications, data centre services, internet providers and video conferencing with see these providers share price remain resilient or bounce back quickly from a broader market downturn. Share here include BT, Zoom.
This was initially one of the less affected sectors given that it is not a large exporting sector and imports little. Supply chain disruption on the whole hasn’t been an issue. However, the construction sector is now likely to see a hit to demand as business investment in new business will be postponed. Construction companies rarely have overcapacity, which limits the sectors ability to catch up when a recovery is underway. House builders will need to see a recovery in consumer confidence.
The hospitality sector will be one of the hardest hit from the UK government’s lock down. As pub, clubs and restaurants shut their doors, it remains to be seen whether the Chancellor’s blowout rescue package will be enough to keep these businesses afloat. Many of these firms were struggling owing to linger Brexit uncertainty prior to the coronavirus hit. A hot summer after the UK is released from quarantine could help this sector bounce back quickly. Although lingering health concerns could see some consumer continue to give these venues a wide birth. Marstons, JD Wetherspoons could benefit.
Retailers were also in a bad place even before coronavirus struck, let alone the British lock down. This sector was already struggling from changing consumer habits and a knock to consumer confidence owing to Brexit. The prolonged period inside could reinforce these changed habits, pushing consumers deeper into the online shopping abyss. Then there is Brexit, with the transition period still due end 31st December and a hard Brexit looking increasing likely in the absence of Brexit talks. Superdry and Debenhams for example could struggle to rebound.
Travel and Tourism
These stocks are experiencing unprecedented troubles. Whilst the US is set to provide $50 billion to support the aviation industry in its rescue package the same has not happened in the UK so far. Travel restrictions are firmly in place. Whilst they are only temporary, the end is still several months off. Demand will rebound as soon as restrictions are lifted although. That said business travel could struggle to reach previous levels as businesses find alternative ways of doing things. IAG, Ryanair and easyJet could rebound.
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