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Wining & Losing ETF Areas on Coronavirus Outbreak

Sanghamitra Saha

China’s Coronavirus outbreak has been spreading fast and wide, raising alarms that it could turn into a global pandemic. The virus is similar to SARS, which erupted in late-2002 in China and caused significant short-term economic losses. Global markets were hit hard in recent trading sessions (read: Best and Worst ETFs of Last Week).

So far, there have been reports of about 3000 infected cases and the death toll in China has reached more than 100. What’s more, there are about 17 confirmed cases in Hong Kong, Macao and Taiwan. Rest of Asia, Europe, North America and Australia has confirmed cases of about 26, 3, 6 and 4, respectively.

Against this backdrop, we highlight ETF areas that are in winning and losing positions owing the coronavirus eruption (read: Don't Panic About Virus, Buy 5 Beaten-Down Top-Ranked ETFs).

Losing Areas

Tourism

The Wuhan virus outbreak has lowered travel demand due to lockdown in Chinese cities, limiting movement of about 56 million people. Traveling has been affected on the global level too. Investors should note that the SARS outbreak was estimated to have hurt 30% of travel and tourism employment in China, Hong Kong, Singapore, Taiwan Province and Vietnam, per the UN.

Along with China’s transportation sector, the event is likely to disrupt global air travel. U.S. Global Jets ETF JETS has lost about 4.7% in the past week (as of Jan 27, 2020). Hotel and casino operators Las Vegas Sands Corp LVS and Wynn Resorts Ltd WYNN, both of which have considerable exposure to China, have lost 9.7% and 12.9% in the same time frame, causing VanEck Vectors Gaming ETF BJK to retreat 4.8%. Invesco Dynamic Leisure and Entertainment ETF PEJ has lost 3.1%.

Energy

China is the world's second-largest oil consumer. Chinese city lockdowns and fears of global contagion have hurt the transportation sector, causing adrop in jet and diesel fuel demand. JPM Commodities Research now expects “a price shock of up to $5 (a barrel) if the crisis develops into a SARS-style epidemic.”

As a result, United States Oil Fund, LP USO has lost 9.3% in the past week and United States Brent Oil Fund, LP BNO fell 8.6%. iShares U.S. Energy ETF IYE has retreated 5.3% during the time frame (read: Virus Scare Weighs on Oil ETFs: Go Short for the Near Term).

Copper

Copper miners bore the brunt as China is a huge consumer of copper. iPath Series B Bloomberg Copper Subindex Total Return ETN JJC has lost about 7.2% in the past week, while Global X Copper Miners ETF COPX lost 8.8%.

Livestock

Trading of wild animals has been temporarily suspended in an attempt to contain the outbreak as the seafood and wildlife are deemed to be the source of the disease. iPath Series B Bloomberg Livestock Subindex Total Return ETN COW has lost about 4.3% in the past five days (as of Jan 27, 2020).

Agriculture

There are growing fears that the outbreak will hurt global demand for grains. Prices of corn, soybeans and wheat slipped on Jan 27. Notably, China is key consumer of U.S. soybeans. Invesco DB Agriculture Fund DBA has lost 3.4% in the past week.

Winning Areas

Biotech & Healthcare

Healthcare and biotech stocks are likely to do well on the growing need for the formulation of vaccines to fight the virus as well as higher demand for hygiene-related products. This puts the spotlight on stocks like Gilead GILD and Moderna MRNA.

Reuters reported that Gilead is in talks with researchers in China and the United States about the potential for its drug remdesivir to be used in treating coronavirus. Meanwhile, Moderna is developing vaccines to cure respiratory syndromes and flu. Both the companies have exposure to iShares Genomics Immunology and Healthcare ETF IDNA. Investors can also consider Health Care Select Sector SPDR Fund XLV.

Gold

While industrial metals were beaten-down on growth worries, safe-haven metal gold glittered on the virus scare (read: 5 ETFs to Protect Your Portfolio From Coronavirus Threat).

Bonds

The U.S. benchmark treasury bond yield slumped on Jan 27 to 1.61% from 1.84% recorded on Jan 17 on safe-haven rally. As a result, bonds benefited. Schwab Long-Term U.S. Treasury ETF SCHQ has risen 3.3% in the past week.

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