Love In The Time Of corona… - How The Virus Impacts Given Sectors In Our Coverage?

Love in the time of corona… - How the virus impacts given sectors in our coverage?

Now as we are publishing this report, Romanian and Polish schools will close and we bet Hungary would step on the same road in the next couple of days if the pandemic does not slow down. The negative economic impact of the virus expands with each day and low visibility remains. Our base case is in line with what corporate leaders are expecting i.e., the pandemic impact will be temporary but this is crucial in how the genuine final consequences will be along with how governments and central banks will step up.

 

Obviously, hotel and transportation sectors are in the most difficult situation, but spill-over effect of the negative sentiment could take its toll even in the short-run. Highly leveraged corporates are also exposed (there is an overlap with the most sensitive sectors), thus we expect credit quality to worsen but the extent is dependent on the length of the virus impact. 3-6 months is bearable and this is our base case, though consolidation in the leveraged sector is expected. Nevertheless, a longer pandemic will have severe consequences for the banking and oil sector as well.

 

Central bankers will likely to intervene seriously, though the ECB remained on the cautious side with rates unchanged but increasing the size of the QE and delivering TLTRO III during the summer. We expect further measures if the virus spreads further and understand the point of view of the ECB, not going for an “all-in” yet but ready to act. The ease of capital requirements and possible stress test delay are also positives in supporting stability in the financial sector and provides more time for corporates. In addition, we expect governments to also step in one way or another.