Coronavirus concern starts to infect the market

Coronavirus concern from ASX-listed companies and a revenue warning from Apple gave the market a dose of reality.

Apple said disruption from the coronavirus had hit production and demand in China. Picture: AFP

A string of references to the coronavirus from ASX-listed reporting companies - and a revenue warning from Apple - brought a dose of reality on Tuesday to a swath of stocks that have been bid up since the start of the year.

The change in tone came despite another reasonable batch of results from leading companies, including our biggest company BHP, which reported 29 per cent higher profit and an improved dividend at US65c. However, management caution around the dividend payment, which had been forecast to be higher, meant the Big Australian closed up just 0.8 per cent to $38.78.

Since the global outbreak of the virus, the ASX has generally stayed bullish, reflecting unchanged positive sentiment on Wall Street, which has paid little attention to the virus as an economic threat.

Apple’s quarterly statement - which warned it would not meet second quarter revenue guidance due to coronavirus issues - might cloud the outlook on world bourses, including China-based markets that have just seen a string of strong sessions.

The weaker sentiment across the market saw the S&P/ASX 200 close 0.16 per cent lower at 7113.7 as supermarket chain Coles, hearing device maker Cochlear and online retailer Kogan all made direct reference to the epidemic.

The shock of the day came from Altium, one of the most highly rated local technology companies, which issued a stern warning on its prospects linked to a slowdown in its China-related business, which saw the stock drop 13 per cent at one stage to close down 8 per cent at $39.31

Cochlear also dropped more than 3 per cent during the session - the company had flagged its result last week which saw the device maker report a net profit increase of 25 per cent and a dividend improvement of 3 per cent.

On the same week we saw the demise of the Holden brand in Australia, 4WD parts specialist ARB Corporation - a mid cap favourite - was sold off by the market, dropping more than 4 per cent after reporting a net profit down 7 per cent and an unchanged dividend.

Separately, embattled financial services group IOOF came in with a 39 per cent fall in underlying profit and a dividend of 16c against 19c in the corresponding period (which had included a special 7c payment). IOOF stock has fallen from $8.18 to $7 since the start of the year, while the wider market has been rising.

For most leading investors it appears the prospect of the coronavirus seriously damaging share valuations remains contained, most likely because of the inability of analysts to model the potential effects of the epidemic.

With different virus-related statistics emerging from China and a report the daily fatality rate is slowing, the market has consistently read all news on the virus in the most positive light. In contrast, economists and company leaders have been more guarded.

Mike Henry, the new CEO at BHP, typified corporate concern in his results presentation when he said the lower than expected dividend reflected a cautious approach.

“Despite near-term uncertainty due to the coronavirus outbreak, trade policy and geopolitics, we remain convinced about the positive fundamentals of our commodities,” Henry said.

Meanwhile, the Reserve Bank of Australia has described the coronavirus outbreak as “a material near-term risk”.