China Coronovirus Impact on Your Portfolio

With the news that the coronovirus outbreak in China is spreading and may be difficult to contain, stock markets are reacting negatively around the world. Is this the event that will halt the multi-year bull run or will it all be a flash in the pan as the Sars outbreak turned out to be? I don’t have the answer to that question so my response is to wait and see and simply follow the market. But it’s impacting some stocks more than others.

Just looking at a few I hold, and some I don’t, it seems that any stocks that have large amounts of business in China are down significantly – for example BHP and Rio Tinto are down 8% in the last few days because they ship a lot of ore to China. Even Polar Capital Technology Trust is down 4% today presumably because they have large stakes in Alibaba and Tencent, whereas most technology stocks have not yet been impacted.

If the virus does spread to the UK, then public venues might be closed so shares such as those in bowling operators (Hollywood Bowl and Ten Entertainment) have fallen and football clubs and cinema chains may be threatened. Cineworld has fallen but that’s just a continuation of a long trend at the company. Pubs, restaurants and hotel chains might also be shares to avoid if the country goes into “lock-down” as people avoid public venues. And don’t forget airlines and holiday package companies who may be impacted by travel restrictions.

Who might benefit from the virus outbreak? The two largest producers of anti-viral medicines in the world are Gilead and GlaxoSmithKline (GSK) but the share price of the latter has fallen 2% today so you can see how the panic is spreading somewhat irrationally. GSK might actually benefit from the spread of the disease.

Even given the worst scenario for the spread of the disease, it seems only those with poor immune systems or other health problems are likely to be fatally impacted unless the virus mutates which is always a possibility. The overall impact on the population may be relatively small particularly if treatments are rapidly developed.

In conclusion, I think it’s something to keep an eye on rather than dumping everything but it may be time to review those shares which may be particularly affected. With the market having had such a good upwards run in the last few weeks, perhaps top slicing a few holdings and introducing trailing stop-losses might be worth considering.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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