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Fri, January 22, 2021 | 00:47
Markets
Aviation industry bears brunt of coronavirus blow
Posted : 2020-02-07 09:48
Updated : 2020-02-07 18:47
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Display, semiconductor remain relatively unscathed

By Anna J. Park

Due to the global spread of a new coronavirus originating in the central Chinese city of Wuhan, various sectors face disparate paths ahead of them during the first and second quarters of the year.

While most people might think the epidemic would wreak havoc on all industries, analysts say the scope of the negative effects varies among them.

One of the most hard-hit industries by infectious diseases is undoubtedly aviation. What is worse is that the nation's airlines have already witnessed about a 30 percent year-on-year decrease in domestic demand for travel late last year, partly due to a downturn of the economy, even without the worldwide spread of the virus.

"Given that flights to China account for about 17 percent of Asiana Airlines' total annual revenue and about 12 percent of that for Korean Air, it is unavoidable that the current coronavirus spread would be a temporary blow to the two airlines," Bang Min-jin, an analyst at Eugene Investment & Securities, told The Korea Times.

"Low-cost carriers also operate various routes near mainland China, such as to Hong Kong, Macao and Taiwan. As people avoid China as a travel destination for the time being, they also tend to avoid nearby countries as well, which would impact low-cost airliners adversely," she said.

The analyst also pointed out that if the epidemic's spread does not drop off by the end of March, the aviation sector will see its second quarter also unfavorably impacted.

She added, however, as viral spreads are significantly weakened during summer, the airline sector could stabilize by the latter half of the year.

Considering declining demand in the sector in the final quarter of last year, the aviation sector would also see a year-on-year increase due to the base effect ― the distorted tendency of a small absolute change to be perceived as a large change owing to previously-recorded abnormal levels.

The retail sector is also expected to take a blow, particularly duty-free shops, large retailers and department stores. Not only has the number of inbound Chinese tourist to Korea decreased, but also people tend to stay indoors, avoiding places where crowds gather such as big department stores.

Yet, market experts expect that their weak performance could partially be offset, as Korea's major retailers such as Shinsegae also operate strong e-commerce businesses. All in all, sluggish consumer demand due to the infection will negatively influence the sector at least during the first quarter.

The oil and refinery sector could also see growth hampered as it closely coupled with the country's overall economy. Yet what is more worrisome is that decreased consumer sentiment could negatively affect demand for various products made from oil or other chemical materials, resulting in a temporary fall in profits.

However some analysts see that the current crisis could also provide a chance to expand its weight in portfolios.

"The oil and refinery industry as well as the chemical sector are inclined to closely interlock with China's macro economy. However, adverse effects could be minimized as China has been using stimuli in these sectors to counter the fall in consumer demand," said Kim Jeong-hyeon, an analyst at Kyobo Securities.

"As the prices of major stocks in the sectors have excessively plummeted, it could be a chance to increase their weight in portfolios," he added.

The impact on the semiconductor sector, meanwhile, is expected to be relatively limited.

Analyst at eBest Investment & Securities Choi Yung-san said, "When it comes to memory chips, there do not seem to be any major supply issues. What is concerning comes from the demand side. Out of various types of demand, such as for servers, PCs and mobile phones, it is now expected that phone demand could be negatively impacted," Choi said.

"China accounts for about 70 percent of the world's smartphone production, which is highly labor-intensive, and extended periods of shutdowns due to holidays could hit the industry. In that regard, mobile DRAM or NAND could be further impacted," he said, adding the impact will be minimal if the epidemic's spread is largely stopped by the end of February.


Emailannajpark@koreatimes.co.kr Article ListMore articles by this reporter









 
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