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How will the coronavirus outbreak impact ASX shares?

The coronavirus outbreak has investors on high alert with global markets jittering over the last few days. Market anxiety was reflected in a 8.2% fall in US 10-year bond yields as global investors diverted their money to safe haven securities.

Although the coronavirus is not yet a global health emergency, the ripple effect of global fear could further impact Australian stocks. As markets digest the coronavirus outbreak, here are some sectors and ASX shares to watch.

Travel and transport

In modern and growing economies, airline travel is regarded as an important indicator of productivity and growth. The Chinese government recently banned international group travel in a bid to encourage people to stay at home and contain any spread of the coronavirus.

China is the world’s largest outbound travel market, with passengers making an estimated 150 million trips abroad in 2018. A ban on group travel will have an impact on economies that rely on aviation and tourism. China is Australia’s largest inbound market for visitors, with approximately 138 flights per week from China to Australia. According to an article in Forbes, an estimated 349,000 Chinese travellers visited Australia in 2017.

ASX stocks in the transport and travels sector have already been sold-off, with airports and airlines feeling the brunt. Last week the Qantas Airways Limited (ASX: QAN) share price fell more than 6% and has continued its slide in morning trade, dropping another 4.77% so far today. The Sydney Airport Holdings Ltd (ASX: SYD) share price is trading at its lowest point since September 2019 after falling 6.75% last week and another 3.80% so far this morning.

Other travel affiliated stocks also felt the negative repercussions. At the time of writing, the Corporate Travel Management Ltd (ASX: CTD) share price has plummeted 13.10% in the past week. In addition, the Webjet Limited (ASX: WEB) and Flight Centre Travel Group Ltd (ASX: FLT)  share prices have also tumbled 8.67% and 7.15%, respectively, since the start of last week.

Chinese commercial and consumer demand

Investors could also be bearish on stocks that rely on Chinese commercial and consumer demand. The demand for steel, coal and raw materials could flounder as the Chinese government may reduce infrastructure spending whilst diverting resources to controlling the outbreak. Despite having a stellar run recently, the share price of stocks like Fortescue Metals Group Limited (ASX: FMG) could see a pullback – in fact, Fortescue shares have been under pressure in early trade, down 8.01% at the time of writing despite no price sensitive market announcements from the miner.

Stocks on the ASX that benefit from Chinese consumers could also be disrupted by the coronavirus outbreak. If Chinese consumer demand and spending has a sustained fall, dairy and infant formula stocks like A2 Milk Company Ltd (ASX: A2M) could take a hit – a2 Milk shares are down more than 3% so far in morning trade today.

In addition, reduced consumer demand could also impact the share price of Australian wine companies like Treasury Wine Estates Ltd (ASX: TWE). Entertainment and leisure brands like Crown Resorts Ltd (ASX:CWN) could also be in the firing line if less Chinese tourists are travelling to Australia.

Should you buy?

As mentioned previously, the coronavirus is not yet classified as a global health emergency. In my opinion, the sell-off in the sectors and stocks mentioned should be regarded as investor panic-selling.

However, I also think it is dangerous to start bottom-picking and buying the stocks listed since the future of the outbreak is uncertain.

I think a prudent strategy would be to keep these stocks on a watchlist and wait for the situation to resolve and let positive price action dictate before making an investment decision.

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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited, Crown Resorts Limited, Flight Centre Travel Group Limited, Sydney Airport Holdings Limited, and Treasury Wine Estates Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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