ALEX BRUMMER: Coronavirus scare hammers shares

For the generation which might have forgotten – or even never known – what a stock market correction looks like, now is the time to learn.

Fears of the corroding damage which coronavirus is having on the world economy have spread dramatically, delivering the worst week for share prices across the globe since the peak of the financial crisis in 2008.

The list of international companies cautioning on future earnings is relentless. What began with airlines and travel groups is impacting every corner of commerce.

Contagion: Fears of the corroding damage which coronavirus is having on the world economy have spread dramatically

Among those fearing the worst is the world’s largest brewer, AB InBev, the Asian-focused UK bank Standard Chartered and the distribution group Menzies.

This is on top of disclosures of loss of earnings from Johnnie Walker distillers Diageo and yogurt maker Danone.

The shutdown of activity in the world’s second-largest economy, China, and the quarantine of two regions in Italy’s prosperous north provides a glimpse of what could happen on a broader landscape.

It has been enough to write £2.3trillion off global stocks this week, hurting the savings of everyone with a pension fund and an equity ISA. 

Coming as it does on the eve of Chancellor Rishi Sunak’s first Budget, it makes forecasting tricky. In some respects, it could provide him with cover if he wants a more elastic approach to the fiscal rules.

If the epidemic were to send the global economy into free fall, as global prophet Nouriel Roubini seems to think (he was one of the few economists to predict the global banking crisis), then the case for fiscal expansion would be strengthened. 

There might even be a case for scrapping the Tory manifesto promise to balance the current spending budget in the next three years.

One would expect the Treasury experts to offer some caution. It was after the financial crisis and subsequent deep recession that the budget deficit soared to £150billion, ushering in almost a decade of austerity and falling incomes. 

Epidemic uncertainty has led to a flight to safety. The gold price is at near records. Investors have also headed into government stocks, sending the yield on US Treasury bonds, a safe haven in troubled times, to record lows.

If there is fiscal headroom, space to increase spending or cut taxes, Western governments might be advised to press the button on standby plans.

More likely in the short term is a co-ordinated cut in official interest rates. This could provide the first chance for the nominated governor of the Bank of England, Andrew Bailey, to show his mettle.

Listed disgrace

It is only too easy to question the motives of short trader Muddy Waters, which exposed the shortcomings in the governance and balance sheet at NMC Health.

But it has proved the canary in the mine, shining a light on a company where the failures of control are almost too long to list.

Muddy Waters recognised weaknesses that were missed by the London Stock Exchange (LSE), which granted the Gulf-based healthcare group a home.

Its shortcomings were also overlooked by auditors EY and by City regulators the Financial Conduct Authority (FCA) and the Financial Reporting Council. 

Aside from a mysterious share register, where it has been impossible to trace beneficial ownership, NMC founder BR Shetty and a senior associate used it as a piggy bank, arranging loans without seeking board permission or making regulatory announcements.

Reality has caught up in the shape of a suspended share price and an FCA probe. It would not be surprising if the file were to be passed over to the Serious Fraud Office.

If David Schwimmer, the chief executive of the LSE, could bear to spare a few moments from his Refinitiv empire-building and think about the impact of the scandal on the reputation of the City, he might win some friends.

Early doors

David Jenkinson has not much enjoyed being Britain’s £45million person. Having taken over the helm at housebuilder Persimmon from Jeff Fairburn, the former £85million chief executive, Jenkinson found the governance criticism hard to take and is retreating.

To be fair to Jenkinson and chairman Roger Devlin, they have moved with speed to end the years of shoddy building and to address poor customer service.

Jenkinson was part of a terrible culture. He will not be missed – but he can spend more time in the pub he bought.


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