Coronavirus outbreak shakes up ASX share market

As the coronavirus death toll rises to more than 1,000 and the World Health Organisation labels it a global health emergency, share markets are feeling the impact of the outbreak with Australian ASX-listed stocks not immune to the damage.

Chinese officials on Tuesday confirmed the death toll from the novel coronavirus 2019-nCoV has hit a grim new figure of 1,016 while the number of infected cases has risen to more than 42,638 – growing by almost 2,500 in one day.

Over the weekend, the death toll officially overtook the SARS outbreak, which killed 774 people over 2002 and 2003.

Originating in Wuhan in China’s Hubei province, the virus has spread to 28 other countries including Australia, the US, Canada, the UK, France, Germany, Russia, India, Japan and smaller Asian nations.

With China practically in lockdown, its share market has suffered from heavily restricted tourism and trade.

Australia currently has 15 confirmed cases of the virus and fear and uncertainty has weighed heavily on its stock market.

Tourism sector affected by travel restrictions

China is the world’s largest outbound travel market, with passengers reportedly making about 150 million trips abroad in 2018 and airlines operating more than 130 flights from China to Australia each week.

The Chinese government has recently banned international group travel in an effort to contain the spread of the virus and Australia’s government has applied its own travel restrictions and quarantine measures.

As of 1 February, Australia will deny entry to foreign nationals until 14 days after they have left or transited through mainland China.

Australian citizens, permanent residents and immediate family will be granted entry but are required to self-isolate for the incubation period.

Airports and airlines have taken a hit on the stock market, with prices falling for big players such as airline giant Qantas Airways (ASX: QAN) and Sydney Airport (ASX: SYD).

Travel agency Flight Centre (ASX: FLT) reported its small corporate travel operations in China, Singapore and Malaysia have been “adversely affected” and said while it was too early to judge the full year impact, “the virus’ emergence has inevitably made it more difficult to deliver the strong second-half earnings weighting implied in the full year guidance” of $310-$350 million.

The company said the upcoming months were traditionally the year’s peak booking periods but both corporate and leisure travel could be affected, as well as hotel and resort operations in Thailand, Bali and Vietnam with Chinese outbound travellers being a key target market for these businesses.

On Tuesday, Flight Centre’s shares had fallen 6.61% over the past week and were down nearly 16% over the month.

Shares in ferry and cruise operator SeaLink Travel Group (ASX: SLK) have also dropped 20% since the start of January and analysts anticipate casinos Crown Resorts (ASX: CWN) and The Star Entertainment Group (ASX: SGR) will be affected.

Meanwhile, Corporate Travel Management (ASX: CTD) claimed the immediate term impact of coronavirus on its business was “minor”, since the Chinese New Year holidays are typically the quietest time of the year for corporate activity in Asia and travel in and out of greater China only makes up a small percentage of transactions for the company.

Companies reliant on China are suffering

Last week, the Reserve Bank of Australia (RBA) opted to leave the cash rate unchanged at 0.75% with RBA Governor Philip Lowe citing the coronavirus outbreak as a source of uncertainty due to its significant impact on China’s economy.

Multi-billion dollar hearing device company Cochlear (ASX: COH) this week announced a downgrade to its FY2020 earnings guidance as hospitals across greater China, including Hong Kong and Taiwan, deferred cochlear implants and other surgeries to limit the risk of infection from coronavirus.

Cochlear reduced its profit guidance from $290-$300 million to $270-$290 million, but compared this latest outbreak to the SARS epidemic, which at the time had caused a temporary drop in sales in China followed by an uplift as the backlog of delayed surgeries cleared.

By close of trade on Tuesday, Cochlear’s shares had fallen more than 8%.

Meanwhile, analysts have forecast other companies with strong ties to the Chinese economy could start to feel the brunt.

Some of the companies predicted to be in the firing line include The A2 Milk Company (ASX: A2M), which is heavily reliant on China as a buyer of its infant formula and dairy products, as well as mining giants such as BHP (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG), as fears the outbreak could disrupt supply chains heighten and the price of iron ore tumbles.

In addition, some Australian building contractors have warned clients of potential project delays due to China being a source of materials.

ASX small caps gaining from the coronavirus crisis

If billion-dollar companies are feeling the effects of the outbreak, the negative impact on smaller companies could be devastating.

However, there are a few small caps that have benefitted from the crisis in a commercial sense. One is medical technology company Uscom (ASX: UCM), which announced a material increase in orders for its haemodynamic monitors developed to help manage infectious diseases in hospitals.

In the last month, Uscom’s shares have surged 200% and are currently up 87.5% in the past week.

Last week, biotech researcher Biotron (ASX: BIT) announced it will start evaluating several promising compounds for activity against coronaviruses including the new 2019-nCoV strain. Its shares surged more than 64% in one week, up 150% for the month.

Perth-based biotech company Holista CollTech (ASX: HCT) has also seen its stock almost double in a month as its NatShield sanitisers sold out and an additional 90,000 units were ordered in Australia and parts of Asia.

Antimicrobial product producer Zoono Group (ASX: ZNO) has ramped up production of key active ingredients for its surface and hand sanitiser products, believing both products could be effective in combatting the spread of coronavirus.

The company said its Z71 Microbe Shield surface sanitiser was tested in 2014 against the bovine coronavirus, confirming 99.99% efficacy in five minutes. The sanitiser products have now been sent to a German laboratory for testing against the 2019-nCoV strain with results expected to be available by mid-March.

Zoono also just announced an exclusive deal inked with Beijing Youmeng Technology and Development to distribute its products in China’s childcare and hotel markets.

The company’s stock has already been increasing dramatically in the last six months, but then doubled in price over the last month following its coronavirus-related announcements.

In addition, shares in Genetic Signatures (ASX: GSS) have increased more than 16% in the past month with the molecular diagnostics company announcing in its quarterly report that its 3base technology is capable of detecting the 2019-nCoV virus strain.

Technology developer Aeris Environmental (ASX: AEI) also reported in its quarterly update that demand in China for its disinfectants have been “scaling significantly” due to the current coronavirus.

Its shares surged more than 43% in the last week and are now double their price three months ago.