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Investors warned not to rush into travel and leisure stocks

 


Travelers trying to board the cruise ship Carnival Panorama for a 7-day trip were delayed in Long Beach, United States.

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Investors are cautioned against the accumulation of money in the travel and leisure industries after their recent surge.

Travel and leisure stocks, including airlines and movie channels, have been hit hard by coronavirus blockages and travel restrictions.

While their valuations have plummeted across the board, some stocks have seen their stock prices soar this week.

On Tuesday, the cinema chain Cineworld jumped by almost 50% while the cruise ship Carnival jumped by more than 20%.

Cineworld, the second largest cinema chain in the world, announced that the bosses had given up wages and bonuses as part of a survival plan to fight blockages of coronaviruses.

Admitting that the current situation was “extremely difficult,” Cineworld said it had abandoned the dividend for shareholders for the last quarter of 2019.

But its price climbed 49% on the London Stock Exchange despite its bleak outlook, with more than 780 cinemas closed in 10 countries.

Another travel and leisure stock, cruise ship operator Carnival, also experienced a sharp price hike on Tuesday after Saudi Arabia’s sovereign wealth fund took an 8.2% stake.

Carnival’s share price rose 11% on the New York Stock Exchange and 22% on the London Stock Exchange.

The cruise ship industry was rampant during the coronavirus pandemic with a number of epidemics at sea raising concerns about the safety of cruise vacations.

Carnival has canceled a series of scheduled departures for 2020 and has said it may be struggling with reservations for 2021.

Given the dire prospects for the industry, experts warn investors to be cautious when they think these stocks have bottomed out and may be in the recovery phase.

“Leisure and travel stocks emerge from a deep, dark place,” said Stephen Innes, global market strategist at AxiCorp. “As people return to the movies, revenues may be slow to increase as moviegoers and the industry follow social distancing guidelines.”

After the theaters reopen, Innes says they may continue to space customers, which will reduce capacity and revenues. “After all, the last thing a movie chain wants to be accused of is being the next super spreader epicenter.”

Planes on the ground

Low-cost airline Easyjet jumped 15% on Tuesday after securing a $ 600 million loan from the government’s coronavirus. Some airlines are facing collapse as they are forced to land planes while debts continue to rise.

The Easyjet rescue program comes from the same airline trade body that IATA published, showing that some 25 million jobs are at risk of disappearing as demand for air travel falls during the crisis.

“Many questions remain as to how willing travelers are to board an airplane cabin even after the pandemic ends,” said Innes.

The pan-European Stoxx 600 equity index rose 1.7% on Tuesday, with travel and leisure stocks rising 6.2%.

“People are now trying to identify risks and opportunities, and they finally believe they can better identify them,” said Bruce Pang, head of macro and strategic research at China Renaissance Securities. “But the virus is still the biggest known unknown in the markets and in financial professionals.”

Analysts warn that it may take longer for consumption to pick up in all sectors, not just travel and entertainment. “In short, it is still bad for airlines, bad for international hotels and slightly positive for domestic leisure activities. But it is still too early to say when the rules of locking or social distancing will be relaxed”, said Iris Pang, chief economist for Greater China at ING Bank.

Even when the restrictions are lifted, demand “may be slow to gain ground due to psychological scars, defaults, bankruptcies and job losses,” said Pang.

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