The most heavily pummelled stock this morning – and that position took some effort, given that British Airways parent IAG lost almost 8.4% – was investment manager Scottish Mortgage Investment Trust (LSE:SMT).
Technically the reasons could be summed up with one word: coronavirus, but this would also be a slightly oversimplified explanation. SMI is primarily investing in the technology sector and innovative stocks with some exposure to Chinese brands such as Alibaba and Tencent.
Ironically, since the virus started spreading in China, those two Chinese tech shares have actually been hit far less than most other “bricks and mortar” Chinese stocks, given that both of them live online. Tencent is like an Asian version of Amazon, Netflix, Facebook, WhatsApp and JustEat all rolled into one, while Alibaba operates like eBay, PayPal, DropBox and Takeaway.com, again all services combined.
In a country where infrastructure ground to a halt at the onset of the coronavirus, being able to watch endless drama series while ordering food online was the one thing that kept it going.
Tesla and Illumina caught up in US sell off
Surprisingly, or maybe not, the bigger hit to Scottish Mortgage Investment came from US stocks, specifically Tesla and biotech firm Illumina which were swept up in a massive selloff across US markets.
The losses on the Dow Jones and S&P 500 for this week are still being tallied up but are beginning to look as severe as in 2008.
Earlier this week when Scottish Mortgage Investment Trust dipped briefly, some market watchers started calling it a buy. That might be far too optimistic. The coronavirus’ run is far from over and it will continue to affect supply chains across the globe.
We don’t know yet which missing nut or bolt produced in China, or possibly South Korea or Italy, will manage to grind down production somewhere else in the world.
Scottish Mortgage has doubled down on tech
Also, some of the stocks in Scottish Mortgage Investment Trust’s portfolio have risen phenomenally fast over the last few years, not only based on current performance but also with built in expectations of future income increases, such as Tesla or Netflix. If those increases don’t materialise, and this year is beginning to look shaky, the selloff will be as merciless as the buying was enthusiastic.
With only a handful of coronavirus cases in the US at present and barely any in Latin America there may be much more damage to come.
SMI’s top five holdings:
|Company||Share decline in the last week|