Trustnet Magazine 62 May 2020 | Page 6

Cover story 10 / 11 [ CORONAVIRUS ] [but] for every company facing a prolonged period of tough times, there is another where Covid-19 will ultimately prove transitory,” Owen adds. “Great companies with relevant business models will undoubtedly see earnings and dividends bounce back.” Airlines in a tailspin Another industry that has borne the brunt of coronavirus is the airline sector, as global travel ground to a halt. The government has bailed out some operators, while consolidation is expected among the larger players and others are likely to go bust. Covid-19 has already proved to be the final nail in the coffin for Flybe, which collapsed into administration in March. Virgin Atlantic is seeking a government bailout, Ryanair will cut 3,000 jobs, while British Airways is making 12,000 staff redundant in response to what it called “an unprecedented crisis”. “All their planes have been grounded, there’s no revenue, so it’s no wonder airlines are struggling,” says Richard Cole, fund manager at Future Money. “But even when we get through the current crisis, the airlines that are still in business will face longer-term challenges in terms of business travel.” He points out many companies are getting used to using video conferencing technology, which will reduce the need for travel to face-toface meetings. The chancellor may step in with support packages for those airlines that have exhausted commercial opportunities for raising cash, probably in exchange for equity in the businesses, Cole adds. “But it’s possible that the government help gets there too late. I could see more airlines going bust.” However, there are only a handful of UK-listed airlines, so the impact should not be disastrous for investors as long as they are broadly diversified. “I suspect we’ve yet to get to grips with the full extent and reality of what this means in terms of the economics for global financial markets” The VIX, a measure of volatility in the S&P 500, spiked to a record closing level above 82 in March as panic selling took hold – usually any reading above 20 is considered high. Higher volatility is expected to persist for some time and investors may want to 200% 150% 100% 50% The fear index remain cautious in case of a fresh bout of selling when the full impact of the pandemic on the global economy becomes clear. “I suspect we’ve yet to get to grips with the full extent and reality of what this means in terms of the economics for PERFORMANCE OF INDEX OVER 10YRS CBOE SPX Volatility VIX global financial markets. It wouldn’t surprise me if we have secondary waves – the recent oil sell-off is a good example,” says Chillingworth. “In times of stress, you need to be careful and defensive. This is not a time for heroes.” 22.3% Online retail hit of total sales in March Breaking the chain The wider trend of “reverse globalisation”, characterised by US president Donald Trump’s protectionist policies and trade war with China, is 0% -50% -100% May10 May11 Source: FE Analytics May12 May13 May14 May15 May16 May17 May18 May19 TRUSTNET trustnet.com