The Coronavirus epidemic has rattled the global financial markets. As of March 6, 2020, this viral outbreak has infected close to 100,000 people worldwide and led to more than 3.8K deaths. As the virus spreads to new countries, more travel restrictions, border controls and lockdowns are being imposed by the authorities, to contain it. Major companies like Facebook have ordered the closure of some branches, due to specific employees being exposed to the virus. Major events have been cancelled by government authorities too.
The viral epidemic is no longer limited to Mainland China. Disruptions in supply chains and business activities, have severely affected global companies, in some sectors more than others, with mounting costs of operation and decline in growth.
On February 28, 2020, the global markets concluded the worst week since the 2008 financial crisis. More than $5 trillion was wiped off global stocks in the manufacturing, travel and retail sectors. The Dow Jones plummeted 1,190 points in a single day, while the UK FTSE 100 lost 823 points over one week, wiping £206 billion off the top 100 companies listed on the index.
For some companies, the epidemic has been pure nightmare. These are examples of how even top companies can fail when their supply chains and markets are not diversified enough. Here’s a look at the most impacted companies and sectors.
The lockdown of factories and businesses in the affected Chinese provinces has severely impacted the iPhone manufacturer. The company is heavily reliant on Chinese factories and consumers. It released quarterly guidance for investors on February 17, 2020, declaring that the company was expecting to face production shortages, leading to supply constraints of some products in the market.
More than 42 Apple stores have been closed in China, and not all of them have re-opened. This has affected demand for Apple products. Apple also assembles many of its products in China, which means that Foxconn, the Taiwanese company that makes gadgets on behalf of Apple, will also be impacted. Among many other companies, Apple has issued warnings that the outbreak would dampen its short-term financial performance.
Apple shares entered bearish territory on February 28, 2020, when stocks hit a low of $256.37, almost 20% less than the record high of $327.85 per share on January 29, 2020. Apple has also slashed its revenue guidance for the second quarter of fiscal year, citing that facilities in the Chinese provinces were ramping up slower than expected.
With travel restrictions and widespread fear of the spread of Covid-19, airline companies have taken a major hit. The International Air Transport Association (IATA) said that worldwide, air carriers could lose between $63 billion and $113 billion in passenger revenues in 2020.
One of the major companies that has been impacted is American Airlines, which saw a 34.8% drop in its share price between February 17, 2020 and February 29, 2020. Along with other carriers like Delta Airlines and United Airlines, the company will broadly waive off hefty ticket change and cancellation fees to promote ticket sales. This waiver will apply to passengers who purchase tickets between March 1 and March 16, 2020, till late January 2021.
Manufacturing shutdowns in Chinese provinces and lack of global demand have hit automobile companies. Automakers are scrambling to procure parts and prevent disruption of supply chains, as the virus hits manufacturing operations globally. Fiat Chrysler shut down its factory in Serbia in mid-February 2020, due to a shortage of Chinese parts.
General Motors is also undergoing a shortage of parts supply for its North American truck production. Toyota Motors has recently re-started its production and supply in China, but in limited numbers. The company, along with auto suppliers Dana and Aptiv, has established task forces to monitor the epidemic closely.
Both General Motors and Ford shares dropped by double digits in 2020. General Motors has said that production disruption could affect its plants in Texas and Michigan. Shares of Tesla have also declined 25.9% since February 21, 2020. Tesla’s new factory in Shanghai shut down in late February 2020, postponing the production of its new Model 3. Volkswagen has also stalled production in all Chinese plants, which it runs in partnership with SAIC. Hyundai and Kia have stalled several assembly lines in Korea.
China accounts for the world’s biggest car market. For Honda, the Wuhan province is the base for 50% of its production. The other severely impacted province, Hubei, is the fourth largest car producer in China. Many factories are still struggling to regain full production capacity in these provinces. This will create a domino effect across the world.
Moody’s Investor Service has slashed its global vehicle sales forecast by 2.5% from the earlier 0.9% on February 29, 2020.
The epidemic has drastically brought down oil demand, with slower global growth. China is the biggest global importer of crude oil and lack of demand in the country has affected energy stocks, which are closely tied to crude oil prices. Crude price has fallen more than 20% so far in 2020.
The outbreak is expected to cause extensive supply and staffing shortages in the oil and gas sector, along with a decline in investment levels of around $30 billion in 2020, particularly in global exploration and production. Shares of companies have tumbled. Devon Energy Corporation has lost 28.8% of its stock value between February 17 and February 29, 2020. By March 3, 2020, energy shares in the S&P 500 had fallen more significantly than other groups on the broad index, losing 7.4% over the 5 previous sessions.
As fears of a global pandemic become a reality, investors are flocking to safe-haven assets like gold, bonds and the US Dollar. The US Federal Reserve recently slashed interest rates by 50 basis points, in an emergency move to tackle this crisis. However, this rate cut has proven to be of little consequence to investors, as wide-scale sell-off continues. It is advisable to tread with caution in this volatile environment and to ensure appropriate risk management measures.