The swine flu epidemic has hurt certain segments of the market, such as travel stocks, while others, such as shares of pharmaceutical companies, may get a short-term lift, according to observers.
As the flu moved beyond the borders of Mexico last week, U.S.-listed shares of Mexican companies — particularly those involved in travel — were hardest-hit. And shares of some of those companies are held by many mutual fund investors.
The affected companies include airport operators Grupo Aeroportuario Del Sureste SA de CV (ASR), Grupo Aeroportuario del Pacífico SAB de CV (PAC) and Grupo Aeroportuario del Centro Norte SAB de CV (OMAB). On Monday when the World Health Organization in Geneva issued an alert on “influenzalike illness in the United States and Mexico,” those stocks dropped 14.4%, 14% and 12% respectively.
“The outbreak of the swine flu in Mexico is a huge threat to the Mexican tourism industry,” said Claudio Freitas, an analyst with Zacks Investment Research Inc. in Chi-cago. As a result, Zacks changed its rating on Mexico City-based Grupo Aeroportuario Del Sureste to “hold,” from “buy.”
“The other airports in Mexico ... are less dependent on tourism but will be affected by the passenger traffic reduction,” Mr. Freitas said. “We will wait for the results before we consider any change in our "hold' recommendation for both companies.”
As of late last week, the stocks had recovered somewhat but where still trading lower.
The $2.48 billion Columbia Acorn International fund (LAIAX), which is advised by Columbia Wanger Asset Management LP of Chicago, held 600,000 shares of Grupo Aeroportuario Del Sureste valued at $22.4 million as of Dec. 31. The $2.1 billion Fidelity Latin American Fund, from
Fidelity Investments of Boston, held 873,900 shares of Grupo Aeroportuario del Centro Norte valued at $6.2 million as of Feb. 28.
Despite their exposure to those companies, both funds were up year-to-date as of last Wednesday, Columbia's by 2.61% and Fidelity's by 19.59%, because their direct ex-posure to Mexico was limited, industry experts said.
As of late last week, it was generally only companies that had a large exposure to Mexico that were adversely affected, they said.
“In the short term, you're going to see some travel sectors involved in Mexican tourism affected, but it won't keep people away from Disney World or Six Flags,” said Vincent Truglia, a managing director with NewOak Capital LLC of New York, an advisory, asset management and capital markets firm.
When the WHO sent out its alert Monday, other stocks fell initially.
They included cruise line operators Carnival Corp. & PLC of Miami and London (CCL/CUK) and Royal Caribbean Cruises Ltd. of Miami (RCL).
But after both announced they were suspending stops in Mexico, their stocks rebounded.
Airline stocks were also hit at the beginning of last week.
Those hardest-hit had multiple flights to Mexico, such as Delta Air Lines Inc. (DAL) and United Airlines parent UAL Corp. (UAUA).
But American Airlines parent AMR Corp. (AMR) and Southwest Airlines Co. (LUV) were trading up last week.
That is a departure from the drop that all airline stocks suffered in 2003 when there was an outbreak of severe acute respiratory syndrome, better known as avian flu or SARS.
At least one market watcher attributes the change to the way swine flu is being handled by the global community.
“Airlines' exposure to exogenous shocks of war and pestilence is always when, not if,” according to a Tuesday note from CreditSights Inc. of New York, a corporate-bond research group. “Empty 747 trans-Pacific cabins during SARS in 2003 was market reaction; now regulators around the world are jumping in quickly as they target airline passengers.”
SOME BENEFICIARIES
That quick action will help to contain the economic impact of swine flu, said John Derrick, director of research at U.S. Global Investors Inc. of San Antonio.
And some stocks will benefit from the epidemic.
“Some of the beneficiaries will be the health care companies that have products that are specific to the swine flu,” Mr. Derrick said.
Those companies include Roche Holding Ltd. of Basel, Switzerland (RHHBY), which distributes Tamiflu, the primary drug being used to fight swine flu; Gilead Sciences Inc. (GILD) of Foster City, Calif., which holds the patent to Tamiflu; and GlaxoSmithKline PLC of London, which makes Relenza, another drug that can be used to fight the disease.
All saw their stock prices jump last week, but the rally may not last, according to Damien Conover, a stock analyst with Morningstar Inc. of Chicago.
“[The swine flu] could reinforce the fact that governments need to stockpile these medications,” he said.
In addition, pharmaceutical and health care companies are more sensitive to other significant head winds right now, some observers said.
“I think that the longer-term implications of government policy initiatives ... would have a much bigger impact on those stocks than swine flu,” Mr. Derrick said.
E-mail David Hoffman at [email protected].
