Why the 'devil' coronavirus has hit European stocks hard

Why the 'devil' coronavirus has hit European stocks hard

Reuters  | Jan 31, 2020 15:33

Why the 'devil' coronavirus has hit European stocks hard

By Thyagaraju Adinarayan and Julien Ponthus

LONDON (Reuters) - The coronavirus scare has wiped $1.2 trillion from global stock markets in the last two weeks as new cases of the deadly virus multiplied, stoking fears of an economic slowdown spreading from its Chinese epicentre to the rest of the world.

With the death toll rising to 213 despite travel restrictions, the impact was most evident in European equity markets in shares of companies which pocket the bulk of their revenues from China, the world's fastest-growing consumer market.

The pan-European STOXX 600 index (STOXX) is poised for its biggest weekly loss in four months, while among individual stocks Germany's Infineon (DE:IFXGn), which gets two-thirds of its revenue from China, has fallen 10% despite strong quarterly results from Apple (O:AAPL), its biggest customer.

The Goldman Sachs' "China exposure" basket of European stocks has slumped 5% this week alone.

Elsewhere Electrolux (ST:ELUXb) shares dropped on Friday after the group warned the outbreak would hit its sourcing of products and components from China. Supply chains are seen as among the key issues arising from the virus, with companies as diverse as Apple, Starbucks (O:SBUX) and Autoliv (N:ALV) warning of potential disruption.

Major names in travel, luxury and retail globally have also been hit as hundreds of millions of people who were preparing to travel for the Chinese holidays cancelled their plans.

Royal Caribbean Cruises (N:RCL) shares for instance have lost 12% of their value since Jan. 17 and the company has warned that its 2020 earnings would be impacted by cancellations.

Yet the virus - which Chinese President Xi Jinping has described as a "devil" - has had a bigger impact on European companies than their U.S. peers due to their high exposure to China.

Analysts have drawn comparisons with the deadly SARS outbreak in 2002-2003, but the read-across is limited as China's share of global gross domestic product has quadrupled since then to 16%.

(Graphic: European companies with high exposure to China - https://fingfx.thomsonreuters.com/gfx/buzzifr/15/5973/5973/Pasted%20Image.jpg )

Several global airlines cancelled flights to China and in Europe shares of long-haul operators Air France (PA:AIRF) and Lufthansa (DE:LHAG) have been on the decline for the past two weeks.

In the hospitality sector, Intercontinental Hotels Group (L:IHG) and Accor (PA:ACCP) were also beaten down.

(Graphic: Airlines, hotel stocks slide on Coronavirus outbreak - https://fingfx.thomsonreuters.com/gfx/mkt/13/1644/1619/stocks.png)

Topping it all, the non consumer-facing mining sector was the hardest hit in Europe, falling 8% on concerns that the coronavirus will cut China's gigantic appetite for commodities.

The graphic below shows how Europe's miners have among the biggest revenue exposures to China.

(Graphic: Mining exposure to China - https://fingfx.thomsonreuters.com/gfx/mkt/13/1547/1522/Mining%20exposure%20to%20China.png)

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