TSX falls in the face of growing fears over coronavirus spreading outside China

A man wears a protective face mask in St. Mark's Square after the last days of Venice Carnival were cancelled due to coronavirus, in Venice, Italy February 24, 2020. REUTERS/Manuel Silvestri

Canadian stocks are getting caught up in a sell-off that started overseas, as fears of the spread of coronavirus beyond China increase.

The number of confirmed cases of COVID-19 rose in South Korea, Iran and Italy. The outbreak has spread to more than 30 countries and there are concerns the virus will take a toll on the global economy.

The S&P/TSX composite index (^GSPTSE) was down 375.42 points, or 2.1 per cent at the open. The drop is relatively broad-based across sectors. The prospects of reduced air travel led to an 8 per cent drop for Air Canada (AC.TO).

Oil (CL=F) also fell, taking the shares of Canadian producers down with it.

Benj Gallander, president of Contra The Heard Investment Letter, says there’s nothing surprising about the sell-off but wonders how far it will go.

“There is no question that many companies’ results will be hurt badly both this quarter and next, Gallander told Yahoo Finance Canada.

“At some point, ‘buy on the dip’ will not work.”

Gallander preaches patience to investors before jumping in.

Throwing the baby out with the bathwater

Even companies with little or no connection to China, or affected by the virus sold off today.

“The buying opportunities will be as always in the ‘babies thrown out with the bathwater’… that is to say, good businesses that have little if any connection to China or the coronavirus and whose share prices are dragged down below their fair values,” Brian Madden senior VP and portfolio manager at Goodreid Investment Counsel, told Yahoo Finance Canada.

“We’d be looking at high-quality cyclicals here as an example like CN Rail (CN.TO), TFI International (TFII.TO), Suncor (SU.TO), Methanex (MX.TO), etc.”

Madden expects the virus to be contained eventually, but any companies reporting weak earnings right now will be punished harshly by investors.

Seeking safety

The gold (GC=F) miners are an outlier today, as the metal’s lustre attracts investors seeking a safe haven. 

Money is also flowing into U.S. Treasuries in a flight to safety.

“Things could get worse from here and getting a little more defensive can make sense but if things were set up in an appropriate manner before, we do not view this as a scenario where a portfolio needs to be turned upside down,” Ryan Modesto, CEO at 5i Research, told Yahoo Finance Canada.

Modesto expects tech companies with recent big gains to be hit hard, and present buying opportunities.

The three main U.S. indices each opened down more than 3 per cent, only days after hitting fresh record highs. 

On the other hand, drugmaker Gilead Science’s (GILD) shares surged around 5 per cent after a WHO official said the company’s experimental drug could be the best way to contain coronavirus.

Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

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