Why the 'devil' coronavirus has hit European stocks hard

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© Reuters. The German share price index DAX graph is pictured at the stock exchange in Frankfurt© Reuters. The German share price index DAX graph is pictured at the stock exchange in Frankfurt

LONDON (Reuters) – A whopping $200 billion was wiped from European stocks at the start of this week as the deadly coronavirus prompted investors to cut back exposure to companies with a strong presence in China, the world’s fastest-growing consumer market.

The plunge on Monday saw European luxury goods makers, airlines and miners among the stocks hit hardest as the outbreak led to ramped-up travel bans, business shutdowns and extended Lunar New Year holidays.

Hundreds of millions of people have been preparing to travel for the Chinese holidays, stoking concerns infection rates may accelerate during the period – which is also a peak retail season in China and overseas.

The virus – which Chinese President Xi Jinping has described as a “devil” – has had a bigger impact on European companies than their U.S. peers due to their high revenue exposure to China.

Some analysts have drawn comparisons with SARS, a deadly virus in 2002-2003, but the read across is limited as China’s share of global gross domestic product has quadrupled since then to 16%.

Investors have singled out the biggest names in Europe’s fashion industry, including France’s LVMH (PA:), Italy’s Moncler (MI:) and Britain’s Burberry (L:), as proxies for the coronavirus outbreak. Chinese consumers have become the sector’s main growth engine over the past decade.

In a research note published on Tuesday, UBS analysts said a 30% drop in Chinese demand, their worst-case scenario, was likely to hit the sector’s earnings by as much as 7% in 2020.

(Graphic: Luxury companies exposure to China – https://fingfx.thomsonreuters.com/gfx/buzzifr/15/5647/5647/Pasted%20Image.jpg)

Meanwhile, early data showed civil air travel in China dropped 41.6% on the first day of Lunar New Year due to travel curbs. In Europe, shares of long-haul operators Air France (PA:) and Lufthansa (DE:) were among the worst hit.

In the hospitality sector, Intercontinental Hotels Group (L:) and Accor (PA:) were also beaten down.

Topping it all, the non-consumer facing mining sector was the hardest hit in Europe, falling 7% on concerns that the coronavirus will cut China’s gigantic appetite for commodities.

(Graphic: Airlines and hotels hit hard as Coronavirus spreads fast – https://fingfx.thomsonreuters.com/gfx/buzzifr/15/5648/5648/Pasted%20Image.jpg)

The graphic below shows how Europe’s miners have among the biggest revenue exposures to China.

(Graphic: Mining exposure to China – https://fingfx.thomsonreuters.com/gfx/mkt/13/1547/1522/Mining%20exposure%20to%20China.png)

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