FTSE 100 Sectors That Got Hit Hard By Coronavirus Spillover

  • Feb 26, 2020 GMT
  • Team Kalkine
FTSE 100 Sectors That Got Hit Hard By Coronavirus Spillover

After the spread of coronavirus and the increase in death toll across the world, the global equity market is witnessing a kind of sell-off since Monday (February 24th, 2020). The unprecedented surge in new cases in Iran, Italy and South Korea ratcheted concerns over a bigger hit to the global economy than previously feared.

So far, the deadly virus which started from China has killed more than 2,200 people across the world and rapidly spread over Asia, Europe, and the Middle East, despite the death counts and fresh cases number lowering in mainland China.

On Monday (February 24th, 2020), tracking sell-off in global markets, benchmark indices of the UK- the FTSE 100 index dropped below its long-term crucial support level of the 200-day simple moving average.  Which indicated that the pain could extend as it breached its 200-day SMA support level.

Sectorally, steep selling pressure was witnessed in tour and travel companies due to restriction posed over people's movement to and out of China, followed by energy, financials, industrials as well as healthcare stocks.

The market swings would likely continue the same in the near term, and global factors will primarily guide this. Rising fears related to coronavirus, which is now spreading to other countries has capped the risk-on sentiment.

Sectors Hit Hard

Almost every FTSE sector are registering lower return since February 24th, 2020. However, consumer discretionary, consumer staples and energy were the worst-performing sectors on the London bourse.

Consumer Discretionary: In the consumer discretionary space FTSE 100 constituent stocks like Carnival PLC, Tui AG, Kingfisher PLC, Barratt Developments PLC, InterContinental Hotels Group PLC, Persimmon PLC, Next PLC, Berkeley Group Holdings PLC, Taylor Wimpey PLC, JD Sports Fashion PLC, Burberry Group PLC, Whitbread PLC, Compass Group PLC, and Flutter Entertainment PLC are among the hard-hit stocks since Monday and in the past two trading session to February 25, 2020, traded lower by -5.9%, -4.9%, -4.3%, -3.7%, -3.2%, -3.0%, -2.7%, -2.5%, -2.4%, -2.3%, -2.3%, -2.1%, -1.1%, and -1.0%, respectively. However, online grocery retailer Ocado Group PLC and online food delivery company Just Eat PLC managed to sustain and went against the broader sell-off in the UK market.  Over the past two trading sessions 17 out of 18 consumer discretionary group companies traded in red, only Ocado Group Plc managed to report flat return in the during the period.

Consumer Staples:  After consumer discretionary, consumer staples are the worse hit on the FTSE 100 index, as FTSE consumer staple index is down by approximately 2.4% in the past two trading sessions. With Associated British Foods PLC (down 4.4%), WM Morrison Supermarkets PLC (down 3.3%), Reckitt Benckiser Group PLC (3.1%), Coca Cola HBC AG (3.0%), Tesco PLC (2.5%), J Sainsbury PLC (down 2.4%), Unilever PLC (2.0%), Diageo PLC (down 1.7%) and British American Tobacco PLC (down 1.3%) are among the laggards, which gave up more 1% in the past two trading session. However, tobacco business company Imperial Brands PLC managed to sustain the market sell-off.

Cumulatively, consumer discretionary and staples command ~ 18% weightage in the FTSE 100 index and stands for the second major sector in the FTSE 100 index.

Energy: Energy companies commands approximately 17.6% weightage on the FTSE 100 index and are the third largest sector on the broader index of the UK. The energy stocks also kept on plunging on the London Stock Exchange since the spread of coronavirus outbreak in more than 29 countries, and heavily weighed on oil demand. As China is the biggest oil consumer in the world, earlier US-China trade spat had dragged demand in 2019 and now the spread of coronavirus extended the same. Oil and Gas major Royal Dutch Shell PLC’s stocks have given up more than 2% since heavy sell-off triggered in the global equity market, and stocks of BP Plc- another major integrated oil and gas company slumped more 2% during the period under consideration.

Financial: The sector having the maximum weight on the FSTE 100 index, also dropped more than 2% in the past two trading days. Legal & General Group PLC – UK-based life insurance provider slumped approximately 4.6% in the past two trading days, followed by Standard Chartered PLC, St. James's Place PLC, London Stock Exchange Group PLC, Standard Life Aberdeen PLC, Phoenix Group Holdings PLC, Barclays PLC, Schroders PLC, Lloyds Banking Group PLC, HSBC Holdings PLC and Aviva PLC, which all tumbled more than 2% during the same period.

17 out of 18 FTSE Financial stocks delivered a negative price return in the past two trading session; only Prudential PLC has managed to trade in the green zone in the FTSE 100 financial arena.

Also, financial sector stocks hold the highest market weightage on the FTSE 100 index of approximately 19% of the total FTSE 100 market-cap.

Meanwhile, demand for safe-haven assets spiked as Gold hit a fresh seven years high of US$ 1,686/ounce on Monday for the first time since February 05, 2013.

The yellow metal prices have been on the up move since the US President Trump announced to slap tariffs on China, back in 2018. However, since the beginning of 2020, the trade war-related uncertainties started softening, after US and China signed a phase-1 trade agreement on January 15, 2020 and most gold investors and traders were expecting that gains in precious metal would be capped. But with trade war uncertainty continuing and now the Coronavirus spillover, is collectively helping the safe-haven metal to outperform most global asset classes.

The deadly virus is turning out to be one of the biggest epidemics, which poses growth risks to global economies. The outbreak of the virus is posing a negative impact on social activities and the economy, the reason why commodities like crude oil and copper have been hit hard in the commodity market, as demand is plunging significantly for these commodities.

With Bank of England reducing the interest rates to a historic low level, the spotlight is back on diverse investment opportunities. 

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