background image

What companies are set to suffer in a COVID-19 recession?

Equities 4 minutes to read
Picture of Peter Garnry
Peter Garnry

Chief Investment Strategist

Summary:  The first bankruptcy in the airline industry happened today with the UK regional airliner Flybe and more pain is coming for the airline industry. In today's equity update we provide investors with lists of the 30 companies in the global equity market with the highest 1-year default rate and the biggest change since COVID-19 was officially acknowledged by China. The worrying conclusion is that European banks dominate the list which makes Europe extremely fragile to a GDP shock from the COVID-19 outbreak.


The ’Biden-bounce’ as yesterday’s rally was called driving technology, health care and energy stocks higher is already dead as the real signals in equity market are flashing stress. Global airliners, restaurants, leisure and hotels stocks were not participating in the bounce and are showing that the COVID-19 outbreak is not easing but worsening.

Global airliner stocks are down 24% from January 17 and 39% from the peak in January 2018. Today, Europe’s largest regional airline Flybe filed for bankruptcy only two month after the UK government announced a rescue plan. According to a press release IATA now estimates that the global passenger aviation industry will lose up to $113bn in revenue in a widespread COVID-19 scenario. While pessimistic IATA shows with their numbers that they are behind the curve on the situation in the US where we believe the outbreak will accelerate significantly over the coming months as testing as been poorly conducted.

5_PG_1
Source: Bloomberg

In Europe, Norwegian Air Shuttle shares are also suffering down 60% since the COVID-19 outbreak was acknowledged in China and down 92% from the peak in July 2015. It all points to more pain for airliners. On the other side the winners will be fantastic stocks as aviation is critical for a global economy so demand will come soaring back when the COVID-19 virus has ended.

5_PG_2
Source: Bloomberg

The table shows the 30 companies in the S&P 1200 Global index with the highest current 1-year default rate in bps. and the biggest change since the COVID-19 outbreak was official acknowledged by China. The companies with the highest default rate are concentrated in the metals, airlines, banks and automobiles industries which should not be that big a surprise as these industries have very high sensitivity to the coronavirus.

One of the really big companies that have seen its default rate rise 86 bps. is ThyssenKrupp which is facing headwinds in many of its divisions and has recently announced that it’s looking to divest its elevator business. But this is really a knife into the heartland of the German industrial engine. In general Europe looks weak here with escalating COVID-19 outbreak will most likely put the continent into a recession which could 1) re-ignite the pain trade in banks and 2) put the green deal on the sideline.

5_PG_3

What is probably the most scary about our list of companies with the highest default rates is the concentration among European banks. In the last 12 years European policymakers have failed to strengthen the banks and the ECB never paid interest on excess reserve like the Fed so European banking system never really healed. With an impending recession it could get ugly in the European banking industry with potential another round of bailouts, at least in a worst-case scenario. The STOXX 600 Banks index is also close to the lowest levels since 1986 when the index started. That’s 34 years of no return to shareholders excluding dividends.

5_PG_4
Source: Bloomberg

Quarterly Outlook

01 /

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

Content disclaimer

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Bank A/S and its entities within the Saxo Bank Group provide execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer and notification on non-independent investment research for more details.
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

Apple and the Apple logo are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.