Swine flu: how will shares react?

Swine flu: how will shares react?
As fears grew over the economic impact of a flu pandemic, shares initially tumbled, with travel and airline companies bearing the brunt of the losses.

By Emma Simon
Last Updated: 4:13PM BST 30 Apr 2009

Fears that the swine flu outbreak could cause further stock market shocks around the globe have proved largely unfounded, although certain shares and funds have fallen in value on the back of this latest health concern.

As fears grew over the economic impact of a flu pandemic, shares initially tumbled on Monday, with travel and airline companies bearing the brunt of the losses.

But later in the week stock markets stabilised, although there was little positive news for those companies operating in the travel and tourism sectors. By Wednesday, British Airways, which was the hardest hit in a general sell-off of airline stocks in London, fell 7.7pc.

Others shares badly affected included Carnival, the Caribbean cruise operator, which saw its share price fall by almost 7pc at one point and Thomas Cook and InterContinental, both of whom saw share prices dive by more than 4pc midweek.

But while investors were nervous about the effect that swine flu could have on these travel firms, many were buying up pharmaceutical companies on the expectation that Government's would be forced to stockpile expensive viral treatments and flu vaccinations.

Two of the biggest beneficiaries were GlaxoSmithKline, which makes flu vaccine Relenz, and Roche which manufactures the drug Tamiflu – which has been proven to be an effective treatment against both avian and the new swine flu.

Market experts said that despite the economic turmoil, stock market were not overreacting to this latest scare. (Why?)

Anthony Grech, market strategist at IG Index, said: "After weathering the likes of SARS and bird flu in recent years, there seems to be an element of wait-and-see among traders."

During the Asian bird flu outbreaks in 2005 and 2006, airline, hotel groups, insurers and oil companies stocks fell heavily, while shares in drug, health care and cleaning product businesses soared.

"I think there will be a little bit of a lift for pharmaceuticals, but this may not follow through unless the situation gets out of hand," said Paul Kavanagh of stockbroker Killik & Co. "Governments will be looking at vaccines, but it's come at a bad time for the world economy and could be very expensive."

For investors that hold Isas, unit trusts and other investment funds, this latest market turbulence may be fraying already taut nerves. But financial advisers have pointed out that the volatility this week should be put into perspective.

Adrian Lowcock, the senior investment adviser at Bestinvest said: "Stock market has a nervous day on Tuesday following the spread of swine flue, but have bounced back as concerns ease. Unless this develops into something much more prevalent we don't expect to see any further impact. The volatile is insignificant when compared to recent events."

He points out that the road to recovery will be bumpy - but this latest jolt does not seem to have derailed the slight market improvements seen over the past month.

The focus on swine flu, may be focusing people's attention on pharmaceutical companies and biotech and healthcare funds. The former invest solely in companies involved in developing new drug treatments and therapies.

The latter have a broader remit, also investing in other health care related companies, such as the large pharmaceutical giants, and companies such as Smith & Nephew that manufacture medical equipment - be it surgical instruments or face masks.

Over the past 12 months, these funds have delivered reasonable returns for investors: Framlington's biotech fund is up 20pc, while Franklin Templeton's biotech fund is up 21pc.

The health care funds have produced more modest returns (Schroders Medical Discovery is up 3.5pc, while Framlington's Health care is up just 0.6pc) but given the wider market falls, anyone invested in one of these funds is no doubt delighted with positive returns.

However, Mark Dampier, of Hargreaves Lansdown says: "Up until a year ago the performance of these funds has been awful." He adds that investors should remember that these are high risk funds, where returns can be volatile. Many are largely invested in US-listed companies, so currency movements can affect returns.



http://www.telegraph.co.uk/finance/personalfinance/investing/5246672/Swine-flu-how-will-shares-react.html



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