Thursday 26 March 2020 ★ FINANCIAL TIMES 11
MARKETS & INVESTING
Benjamin Parkin
Markets Insight
Boeingled the S&P 500 gainers following
areport that production of its 737 Max jet
might restart by May.
Reuters said the plane maker, which
has requested $60bn in government aid,
had asked some suppliers to be ready by
next month to start shipping parts.
Citigroup repeated “buy” advice on
Boeing. It said bailout cash will be short-
term in nature with Boeing having
options to boost liquidity without
accepting dilutive government aid —
and saw the Max as “critical” to the
investment case as the jet is “the only
significant source of cash flow growth”.
Progress with a US stimulus package
helped lift travel and leisure stocks such
asRoyal Caribbean Cruises, which on
Tuesday said it had secured a $2.2bn loan.
The liquidity boosted Royal Caribbean’s
on-hand cash to $3.6bn and meant it can
keep operating with no revenues for up
to five months, SunTrust analysts said.
CenturyLink, the telecoms services
group, slipped on Citi “sell” advice.
Faster core revenue erosion, a rising
debt burden and fibre-investment needs
will weigh on CenturyLink’s valuation
with any worsening of trends potentially
threatening the dividend, Citi said.
At Home, the home decor retailer, slid
after Guggenheim turned cautious,
saying the crisis may deliver a long-term
hit to consumer confidence.Bryce Elder
Wall Street Eurozone London
Adidas andPumasurged after US peer
Nike reported demand recovering in Asia.
The sportswear maker forecast flat
group sales in the quarter to May as
consumer trends were normalising in
China, with signs of improvement in
South Korea and Japan.
“We are expecting similar trends for
Adidas as its business model also shows
flexibility on the supply chain and in cost
lines with no liquidity issues,” said Kepler
Cheuvreux. “This is probably the time to
increase exposure to Adidas again.”
Media and travel retail group
Lagardèrerallied despite suspending
end-of-year guidance and proposing a
dividend cut.
HSBC forecast Lagardère’s travel retail
arm to be “significantly lossmaking” this
year but argued that publishing should
be a little more resilient, leaving the
group operating close to break-even this
year. Dividend decisions were likely to
reflect pressure from Amber Capital,
Lagardère’s biggest shareholder, it said.
Ipsenof France slid after withdrawing
2 020 sales and margin targets.
The maker of cancer drugs and anti-
wrinkle injections said that, while the
financial impact of the crisis had been
limited, it could no longer guarantee
guidance, given reduced interactions
between healthcare professionals and a
general economic slowdown.Bryce ElderStifel “buy” advice helped liftJD Sports
as the FTSE 100 index extended its
rebound into a second day.
“Store closures in all major geographies
will undoubtedly have an impact on the
business but it will be temporary,” Stifel
said. “Meanwhile, the online channel
continues to operate and the UK
government’s support means that the
company will benefit from a business
rates holiday and having wages costs
covered (at least in the UK). JD Sports is
one of the highest quality stocks in UK
retail and investors should take
advantage of this entry point.”
RSA Insurancerose on the back of an
upgrade to “buy” from Panmure Gordon.
RSA’s business lines would see
“relatively little impact” from the virus,
Panmure said, arguing that its
“conservative investment portfolios”
should act as buffers to the capital
position.
Forterraled the brick makers lower
after warning late in the session that it
would suspend dividends, could not
stand by full-year guidance and had
drawn down a revolving credit facility.
Sector peerIbstockslipped in tandem.
SSP, the travel café operator, jumped
after successfully raising £216.25m with a
share placing to bolster its finances.
Events groupInformarose after
Berenberg turned positive.Bryce Elder3 Airlines help extend Wall Street’s
recent gains
3 Back-to-back rises for Europe-wide
equity benchmark
3 Gold consolidates above $1,600 after
strong Tuesday rally
The volatile moves that had
characterised markets for the past month
were more muted yesterday while
investors took stock of more government
initiatives aimed at combating the spread
of coronavirus.
US stocks on Tuesday staged the
biggest rally in more than a decade with
the Dow Jones Industrial Average and
S&P 500 index climbing more than 11 per
cent and 9 per cent, respectively.
The S&P 500 was up a more modest 3
per cent by midday yesterday as
investors awaited details of a $2tn relief
package agreed by US legislators
overnight.
Ahead of a Senate vote on the rescue
package yesterday, Democrats revealed
that the bailout included four extra
months of unemployment insurance for
those who would lose their jobs and
support for airlines that have been hit
hard by a sharp drop in travel owing to
restrictions imposed by scores of
governments.
Among the best-performing US sectors
yesterday were airlines, which rallied
strongly in anticipation of government
help. Delta, JetBlue, Southwest and
American Airlines climbed, helping the
Dow Jones Transportation Average rise
more than 6 per cent — outperforming
broader US indices.
The tech-heavy Nasdaq Composite
was up 1.6 per cent while the Dow Jones
jumped 4.9 per cent.
But Tim Graf, head of macro strategy
Emea at State Street Global Markets,
warned against reading too much into
Wall Street’s recent bounce.
“Bull markets do not typically begin
with 10 per cent rallies in a single day,
even if the policy response to this crisis
has been more expansive and powerful
than any previously offered,” he said.
In Europe, stocks also rose with Paris’s
CAC 40 index the best performer among
the continent’s leading bourses, up 4.
per cent. This helped the broader StoxxEurope 600 index gain 3.1 per cent for its
second consecutive day of rises.
In Asia, the CSI 300 index of Shanghai-
and Shenzhen-listed equities closed up
2.7 per cent while Hong Kong’s Hang
Seng rose 3.8 per cent.
Haven assets reflected a calmer day’s
trading with the yield on the 10-year US
Treasury edging 2 basis points lower to
0.80 per cent while a strong Tuesday rally
in gold, in which the metal climbed more
than 5 per cent, ebbed. It ticked up 0.1 per
cent to $1,612 an ounce.
Brent, the global oil benchmark, rose 1.
per cent to $27.52 a barrel.Ray DouglasWhat you need to know
US airlines rally in anticipation of Washington aid
Source: RefinitivDow Jones Transportation AverageJan MarThe day in the markets
Markets update
US Eurozone Japan UK China Brazil
Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa
Level 2467.14 1235.83 19546.63 5688.20 2781.59 73599.
% change on day 0.81 3.27 8.04 4.45 2.17 5.
Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $
Level 101.471 1.083 111.435 1.176 7.100 5.
% change on day -0.557 0.278 -0.045 -0.170 0.328 -0.
Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond
Yield 0.827 -0.265 0.032 0.440 2.683 9.
Basis point change on day -5.050 6.000 -0.250 -3.400 0.000 7.
World index, CommodsFTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 287.15 27.45 24.55 1605.75 13.63 2277.
% change on day 4.58 -0.47 1.07 5.27 8.91 2.
Yesterday's close apart from: Currencies = 16:00 GMT; S&P, Bovespa, All World, Oil = 17:00 GMT; Gold, Silver = London pm fix. Bond data supplied by Tullett Prebon.
Main equity markets
S&P 500 index Eurofirst 300 index FTSE 100 index||||||| ||||||||| ||||
Jan 2020 Mar1920
2560
3200
3840
||||||||||||||||||||
Jan 2020 Mar960
1280
1600
1920
|||||| |||||||| ||||||
Jan 2020 Mar3840
5120
6400
7680
Biggest movers
% US Eurozone UK
UpsBoeing 31.
Norwegian Cruise Line Holdings Ltd 21.
Royal Caribbean Cruises Ltd 16.
Humana 16.
Darden Restaurants 14.Cnp Assurances 23.
Safran 18.
Natixis 16.
Amadeus It 12.
Acs Const. 11.Jd Sports Fashion 20.
Legal & General 16.
Persimmon 15.
Associated British Foods 15.
Royal Bank Of Scotland 13.
%
DownsOld Dominion Freight Line -29.
People's United Fin -8.
Mylan Nv -7.
Target -7.
Comcast -6.
Prices taken at 17:00 GMTGrifols -5.
Coloplast -4.
Erste Bank -4.
Colruyt -3.
Atlantia -3.
Based on the constituents of the FTSE Eurofirst 300 EurozoneRentokil Initial -8.
Polymetal Int -3.
Morrison (wm) Supermarkets -3.
Coca-cola Hbc Ag -2.
Melrose Industries -2.
All data provided by Morningstar unless otherwise noted.T
he sight of Rana Kapoor,
one of India’s highest-
profilebankers,beingtaken
to a Mumbai court in his
tracksuit in early March
augured what has become a very bad
monthforthecountry’sbankingsector.
Mr Kapoor was arrested and accused
of taking kickbacks only days after Yes
Bank,thelenderhefoundedin2004but
left last year, was taken over by the
country’s central bank amid concerns
that it would not survive a deterioration
in its loan book. Mr Kapoor, who denies
theallegations,wassenttocustody.
To save Yes Bank, the authorities cob-
bled together a rescue plan that saw a
range of big Indian lenders led by the
State Bank of India, the country’s larg-
est, infuse funds in return for an equity
stake. The episode was a jolt to inves-
tors, who worried it could exacerbate
vulnerabilitiesinthefinancialsystem.
But the challenges now facing India’s
banking sector have reached another
order of magnitude due to the coronavi-
rus threat, and investors have made it
known by dumping equities. Bank
stockshavebeenamongthehardesthit.
The National Stock Exchange’s Nifty
Bank index has fallen about 41 per cent
so far this month, outpacing the 26 per
centroutinthebroaderNifty50gauge.
Shares of large private lenders such as
Axis Bank and IndusInd Bank have lost
at least half of their value over the same
period.
From public sector behemoths to a
mushrooming collection of private out-
fits, India’s banks have for years worked
to beat down mounting piles of bad
loansofthesortthatfelledYesBank.
The ratio of gross non-performing
assetsatIndianbanksroseto11percent
in 2018 from about 2 per cent a decadeearlier, before starting to ease off.
The Reserve Bank of India had
already estimated that the nation’s
economic slowdown would mean that
thisfigureedgesbackup.
But traders are now betting that
eventsofthepastmonth,culminatingin
adecisiontoshutdownlargepartsofthe
country in response to Covid-19, could
knockarecoveryoffcourse.
“The economy was already bad,” said
Saswata Guha, India financial
institutions head at Fitch Ratings.
“Perhaps it was showing some signs of
shaky stability, now we have this full-blown impact of coronavirus. Where do
wegofromhere?Itlooksquitebleak.”
This extra strain was partly collateral
damage from the Yes Bank interven-
tion.Someskittishdepositorsatahand-
ful of smaller private banks pulled their
money,bettingthatitwouldinfuturebe
safer in the state-backed heavyweights
thatdominatethesector,suchasSBI.
Another blow was self-inflicted.
Before the dust settled on Yes Bank,
the Supreme Court ruled that telecoms
operatorshadtopayduesworthbillions
owed to the government. That caused
panic selling in bank stocks, due to their
heavyexposurestothetelecomssector.
Vodafone Idea, the UK telco’s local
venture, has already said such a move
could force it out of business — causing
instant damage to creditors such as
IndusInd or IDFC Bank, whose shareshave also dropped sharply this month.
But the most dire challenge for India’s
banksistheviraloutbreak.InaTuesday
night address to the nation, Prime Min-
ister Narendra Modi announced that
India would embark on a 21-day lock-
down to keep people in their homes and
leaveonlyessentialbusinessesrunning.
Banks now face the prospect of lower
corporateloangrowthandaswiftuptick
inlosses.
Butthebiggestriskofall,analystssay,
is that the prolonged shutdown starts to
sour what had previously been consid-
ered a safer bet — retail loans, which
according to Nomura make up 28 per
centofbanks’exposures.
Those loans were seen as better pro-
tected from the risky or bad decisions
that tainted lending to Indian conglom-
erates but the prospect of lost jobs and
small business closures as more than
1bn Indians stay at home could change
thatequation.
“What we really do not want is when
you start to see cracks in the retail
book,” said Gaurav Arora, head of Asia-
Pacific banking at Greenwich Associ-
ates. “The market is pricing in the fact
thatwitheverythingslowingdown,peo-
ple are going to be laid off... they
might not be able to get liquidity and
payoffthedebtthattheyhave.”
In order to withstand the shock,
banks have sought relief measures,
including a call for the RBI to relax rules
that require them to classify an unpaid
loanasnon-performingwithin90days.
More will be needed. As Indians settle
in for three long weeks of curfew, it is
clear that the long-awaited recovery of
the country’s banking sector is in deep
jeopardy.[email protected]India’s banking
recovery in peril
before it even starts
‘The economy was already
bad. Now we have this
coronavirus impact. Wheredo we go from here?’
Global Appointments
MARCH 26 2020 Section:Markets Time: 25/3/2020 - 18: 31 User: stephen.smith Page Name: MARKETS2, Part,Page,Edition: EUR, 11 , 1