Investors are growing increasingly worried that the spreading coronavirus will h...
NEW YORK - Investors are growing increasingly worried that the spreading coronavirus will hit U.S. corporate cash flow and credit in some sectors, especially if the outbreak keeps workers at home or prevents companies from paying employees.
“This is altering people’s travel plans and work schedules,” said Brian Reynolds, chief market strategist at Reynolds Strategy. “You could see defaults pick up because a slowing of economic growth. If you see what’s happened to credit spreads, that has already discounted some modest increase in defaults.”
A shutdown of parts of the Chinese economy has created problems for U.S. companies dependent on the country’s production and consumption. But as the outbreak spreads, reduced economic activity in the United States could also become a factor. Various investors and market watchers are now cautioning about the risk to credit markets if the virus causes significant slowdown to the economy.
“Much of it is now facing a considerably higher risk of downgrade, given the inevitable global economic slowdown caused by coronavirus,” wrote El-Erian.Ratings agencies Moody’s, S&P and Fitch have all said that coronavirus poses risks to U.S. companies’ earnings and cash flow, citing in particular sectors dependent on discretionary consumer spending and global supply chains.
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