<p>Apparently, coronavirus from China has destroyed pretty much all listed companies. But for the credit card giant Mastercard (NYSE: MA), the outbreak came at a really difficult time. Just as the virus leaned forward to become a pandemic, Mastercard announced a change at the top. Is the executive growth enough to move the story of MA shares?
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In the short term, no. As I will discuss in more detail below, the coronavirus is out of control. One of the biggest takeaways is that international health officials failed in the first battle: to keep the coronavirus in China. When the eruption has rippled through 56 countries and an international transport – Diamond Princess cruise ships – things are bad and will get worse.
At the basic level, the crisis – a black swan event really – should have a negative effect on the MA share. Like other financial institutions, such as JPMorgan Chase (NYSE: JPM) or Goldman Sachs (NYSE: GS), Mastercard is a clockwork. Basically, these stocks are a real-time indicator for the real consumer. Due to this, the volatility of the share price does not bode well for the broader markets.
Before you get any ideas about playing counters on MA stocks, consider the hard facts. On February 25, the Mastercard share fell by 6.7% compared to the previous session. That places it among the worst one-day shows in Mastercard history (coming in on the 22nd worst day, to be exact).
Furthermore, the MA share fell by 17% on 27 February over a five-day period. This is the fourth worst five-day period in the stock‘s history. And with pessimistic news continuing to seep in, we can realistically stare down the barrel at a dubious new record.
So, you should be worried about Mastercard? Only if you have significant funds used for the markets.
Coronavirus is a potential time bomb for MA stocks
I realize that there are still many analysts who urge people to take the coronavirus in perspective. Honestly, I am amazed at their boldness in the light of growing evidence that this outbreak has no real modern parallel.
Yes, when you map the cumulative number of cases of coronavirus on a logarithmic scale, it really seems as if the outbreak is fading. But I think such charts are misleading because they are mainly used for cases in China. But in other parts of the world beats the virus only his step.
On February 16, the daily growth rate in the China case was 3%. On February 27, the interest rate had fallen to 0.42%. Hence the slowdown in overall cases of coronavirus. During the same period, however, the growth rate for cases outside China increased to 28.7% from a more manageable 12%.
From another angle, cases outside China represented just under 1.1% on 16 February. As of February 27, these cases now represent almost 5.2%. In other words, after the coronavirus first hits a country, we should expect a rapid, exponential deterioration.
This may seem like fear, but I can assure you that there is no hyperbole. In Italy, one person triggered a domino effect that has so far infected 655 people and killed 17. As far as I understand, Italian authorities have still not found “patient zero”, their nation’s first carrier of the disease. The crisis broke out in a few days.
Or consider South Korea. What was once a marginally affected country now has over 2,000 cases. To put this in perspective, the figure is more than the total sums for Japan and the cruise ship Diamond Princess.
Thus, the risk is not about exaggerating the effects of coronavirus. Instead, I think you lose credibility if they do not take enough of this outbreak. And with such devastation around the world, the whole is not favorable for MA stocks.
So when should you buy for Mastercard?
In the long run, I believe that shares in Mastercard will provide an opportunity to buy. However, I do not think the opportunity is now, as investors realize that this outbreak is here to stay for a while longer than expected. To summarize previous points, I hesitate for the following reasons:
The five-day loss of 17% is extremely worrying. The last time we saw such a scale was only during the economic collapse of 2008. Keep in mind that Mastercard’s record for a five-day loss over time is 19.5%, on January 20, 2009. These figures do not inspire confidence. Coronavirus transmission rates are escalating worldwide at an uncomfortably fast rate. With an implied (but simplified) mortality of over 3%, the virus has the potential to kill millions if it spreads as quickly as the common flu. We have already seen three crises – Diamond Princess, South Korea and Italy – balloon from one fall to hundreds (or even thousands) in a few days, so it is fair to assume that circumstances will worsen before they get better.
Here’s my game for investors investing in MA stocks: first and foremost, protect yourself and your family. Then, wait for the markets in a few weeks. I’m almost certain that the discount today is not the word for Mastercard.
Josh Enomoto, a former Sony Electronics Business Analyst, has helped broker large contracts with Fortune Global 500 companies. In recent years, he has delivered unique, critical insights for the investment markets, as well as for various other industries, including law, construction management and healthcare. At the time of writing, he had no position in any of the above-mentioned securities.