Global stocks waver on flu concerns

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http://www.nytimes.com/2009/04/28/business/28markets.html?ref=global-home

Global Stocks Waver on Flu Concerns

By JACK HEALY

Published: April 27, 2009

As fears grew about a deadly outbreak of swine flu, investors on Monday

performed the financial equivalent of washing their hands and donning surgical

masks. They bought heavily into drug stocks, spurned the Mexican peso and shied

away from pork producers. Broader stock markets trembled in the first half of

the day, and gave up moderate gains as investors watched to see how far the

cases of swine flu would spread, and whether concerns about a pandemic were

exaggerated or legitimate. The rash of cases began in Mexico and has spread to

the United States and Canada, and probable infections have been reported from

New Zealand to Spain.

Shortly after 1 p.m., the Dow industrial average was 20 points lower while

the broader Standard & Poor's 500-stock index was down slightly, after a week of

light losses for the major stock indexes. Markets in Europe and Asia were mixed.

American-traded shares of the European companies GlaxoKline and Roche

Holding, which make various prescription flu drugs, were all higher — a sign

that investors are betting they will find big new sources of sales as

governments worldwide increase their stockpiles of antiviral drugs.

Novavax, an American vaccine maker, soared 75 percent Friday in New York, though

it was not clear if that movement reflected anything more than a rush by

investors into any stock that might conceivably gain from the epidemic. It rose

another 130 percent Monday in early trading.

" We've seen these kind of effects with outbreaks before, " Purkiss, a

drug sector analyst at Atlantic Securities in London, said. " Generally speaking,

you get a rally in stocks that have any kind of links to influenza. " Airline and

travel companies fell sharply as the European Union urged Europeans not to

travel to the United States, where some 40 cases of swine flu have been

confirmed, including eight in New York City, one of the biggest travel hubs and

tourist destinations in the country.

Shares of Continental, Delta and the parent companies of American Airlines and

United Air Lines were all down by double digits. The huge cruise operator

Carnival fell 8 percent on worries about the outbreak's potential effect on

tourism to Mexico and other destinations.

If the outbreak spreads rapidly and nervous travelers decide to stay home,

airlines already struggling to endure the economic slump could suffer another

leg down during their peak summer months, said Hunter K. Keay, an airline

analyst at Stifel Nicolaus. Mr. Keay said he is still more concerned about

airlines' longer-term problems, but said investors seemed shaken up on Monday.

" They're drawing conclusions that if this outbreak does turn into an epidemic it

would have an impact on travel, " he said. Companies that make pork products and

slaughter hogs were also hurting. Hormel, the maker of Spam, and the pork

producer field Foods fell after countries including Lebanon, Thailand and

Indonesia imposed restrictions on pork imports, raising fears that countries

would hastily build trade barriers as they rush to contain the disease.

On Sunday, top American health officials tried to tamp down those fears,

reminding people that they cannot contract swine flu by eating pork.

The price of longer-term Treasury debt rose, a sign of more defensive behavior

by investors, and a response to an announcement that the Federal Reserve had

bought $7 billion in Treasury coupons. The yield on the benchmark 10-year note,

which moves in the opposite direction of price, fell to 2.94 percent from nearly

3 percent late Friday.

" The swine flu outbreak is another watershed event for the U.S. treasury

market, " Tom DiGaloma, head of United States rates trading at Guggenheim

Capital, wrote in a note to investors.

But declines in the United States turned into a rout in Mexico, the epicenter of

the outbreak, where more than 100 people have died and more than 1,300 have

likely been infected. The Mexican Bolsa stock index dropped more than 3 percent,

and shares of Mexican food companies, retailers and transportation companies

dropped sharply.

Elsewhere in financial markets, investors pushed shares of General Motors 20

percent higher after the automaker said it needed an additional $11 billion from

the government and was prepared to file for bankruptcy if a proposed exchange of

debt for equity did not pan out.

General Motors said it was also planning to close more plants and dealerships

and eliminate its Pontiac brand as it tries to turn itself around and end

quarter after quarter of billion-dollar losses. Shares of Ford, which has not

taken any government bailout money, were up 1.6 percent.

Jolly contributed reporting.