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