Fear of the coronavirus and its wider effects on the global economy have sent shivers through the financial markets. At the time of writing, the markets are in free-fall, and downgrades are inevitable.
It may be a shock for many novice shareholders but the coronavirus-linked crash is tipped to be on course for a crisis as bad as, if not worse than, the global crash of 2008.
Virtually all the FTSE 100’s constituents are displaying losses, and some are posting profit warnings.
When panic subsides, which sectors will rise?
As Covid-19 is still spreading, we cannot yet predict the extent of the damage it will wreak on national economies and the financial markets.
But scaremongering aside, I prefer to look at the bigger picture with a long-term view. When it comes to stocks, among the losers, there will be winners when the world starts to return to normal. And I am looking to billionaire investor Warren Buffett’s advice to seek opportunity in the stock market.
For instance, once the panic subsides, and people return to normal life, the entertainment industry will thrive again. It’s human nature to want to celebrate life and enjoy being together. Think pub chains and cinema operators.Â
And although I think people will want to celebrate, some may be less keen to venture out in public, so home food delivery and streaming entertainment products are likely to thrive.
It’s reasonable to think this outbreak will make people more vigilant about their personal hygiene so disinfectants, hand gels and immune-boosting products are likely to do well over the long term. That means healthcare and personal care specialists. I like Hikma and Astrazeneca in pharmaceuticals and Reckitt Benckiser, the manufacturer of Dettol in consumer goods.
Then there are the sectors that prosper in times of crisis and when times are more ‘normal’ too. I think defence will remain a key focus for governments’ budgets going forward. FTSE 100 Stocks I think worth saving to a watchlist include BAE Systems in defence, which has a 3.8% dividend yield, covered twice by earnings per share, and a price-to-earnings ratio (P/E) of 13.
Safeguarding the supply chain
Another issue that the coronavirus crisis has thrown up is around company supply chains. Where are companies getting their products from or the machinery they need to manufacture the goods? Is this going to be affected by the closing of borders? And perhaps firms with the best control of their supply chains are worthy investment targets.
Many FTSE 100 constituents are international, with a complex supply chain often focused on China. Associated British Foods, which owns Primark, has warned of potential stock shortages on disruption to its supply chain, but is also being proactive about protecting its supplies.
Popular homeware retailer Dunelm, which has enjoyed a share price rise of 29% over the past three months, gets its stock from overseas too. In mid-February its CEO said the company has enough stock to tide it over for months.
But aside from checking out companies making in-demand products and with robust supply chains, I think the key thing that is important for every shareholder to remember is Don’t Panic! Avoid panic-selling, as you never want to sell at the bottom. Sit tight and wait for more information or good buying opportunities if you’ve done your research and have cash to spare.