“The place to be”? Not for many ASX listed stocks who are copping a hit from a second wave of COVID-19 infections across Victoria.
US shares have returned to their highest levels since the COVID-19 selling began, but our shares are still a way off that level, with recent underperformance corresponding to the spike in Victorian case numbers.
New Victorian infections are now running at more than double the initial March-April peak and it’s therefore unsurprising that some stocks are seeing related selling; these could present good shorting opportunities in the current economic climate.
Travel and tourism stocks:
Probably the biggest losers from a return to lockdown in Victoria are the travel and tourism stocks. No longer will tourists be travelling to-and-from ‘The education state’ and given that Victoria makes up a fair amount of the Australian population, the already beaten-up travel related stocks will likely take an even bigger hit. Of particular note is Crown Casino, whose flagship casino in the state will no doubt take a massive hit to earnings.
Possible affected stocks: Qantas (QAN.AX), Sydney Airport (SYD.AX), Flight Centre (FLT.AX), Webjet (WEB.AX), Crown Casino (CWN.AX), and others.
Some infrastructure stocks:
Some infrastructure stocks, particularly transit infrastructure, are going to take a hit from the return to lockdown in Victoria. Of particular note is Transurban, who operates toll-roads. Transurban’s flagship CityLink project in Victoria provided 31.5% of its proportional tolling revenue in FY19 and with a return to lockdown, we could expect a drop in volume on the road of at least 50 percent; in-line with what we saw in the initial Victorian lockdown. On top of this, transport changes brought about by COVID-19 will undoubtedly continue to weigh on their operations in other locations as well.
Possible affected stock: Transurban (TCL.AX)
Some real estate and property stocks:
Some property related stocks are also likely to see negative effects from the virus’s resurgence in Victoria. Some of the more heavily affected stocks in this space could include retail focused REITs. A good example of these would be Vicinity Centres, who owns and operates several major Melbourne shopping centres, including Chadstone, The Glen, and DFO Essendon. A change in work habits, with more employees working from home could also hit office leasing and diversified REITs. Other property related stocks such as online listings sites Domain and RealEstate.com.au could also see a drop in listings due to COVID-19 related issues.
Possible affected stocks: Vicinity Centres (VCX.AX), Scentre Group (SCG.AX), Mirvac Group (MGR.AX), Dexus (DXS.AX), GPT Group (GPT.AX), Domain Holdings (DHG.AX), REA Group (REA.AX), amongst others.
These are some of the stocks that will take a hit from the impacts of COVID-19 in Victoria. However, the longer the outbreak lasts, and the more it spreads to other states, the more companies that will be drawn into the negativity.
If you wish to discuss the effects of the virus on equity markets or indeed on a particular stock, please don’t hesitate to contact your Emerald Equities advisor on 03 8080 5777 or at advisors@emeraldfinancial.com.au
Sam Green is the Portfolio Manager at Emerald Financial, whilst also being an Equities and Derivatives expert for his clients at TradersCircle.
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