Bank Bear Stearns Warns Against Airline and Retail Stocks due to Bird flu

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Bear Stearns warns against airline stocks due to 'imminent' bird flu
By Ambrose Evans-Pritchard (Filed: 21/03/2006)


Investment bank Bear Stearns has advised investors to start dumping airline and retail stocks in favour of blue-chip utilities as a hedge against bird flu, warning that a full human pandemic of the H5N1 virus could set off the worst global stock market crash since the 1930s.

In the first detailed study of its kind, the US bank suggests buying Scottish Power, biotech companies such as Amgen and Medimmune, and the US health group St Jude Medical Inc, citing them as the sort of companies that would hold up well or even rise in the first phase of a pandemic.

"We believe the imminent arrival of bird flu in the United States will bring this potentially devastating disease back into the limelight," said the report. If bird flu turns out to be a 'worst event in 100 years' then extreme risk analysis suggests it could push the market down 46pc over a 12-month period. "We believe investors should consider a basket of stocks to inoculate their portfolio from this source of risk," it said.

Any stock slide would most likely be followed quickly by a V-shaped recovery, creating a rare chance to snap up shares at super-cheap prices.

Andrew Harmstone, the study's lead author, advised against a blunt strategy of stock liquidation or betting indiscriminately on share price falls by taking out net "short" positions.

"Timing is crucial. Shorting the market is not a good hedge against a pandemic that has not happened, and may never happen," he said, adding that premature action would tie up funds and may cause investors to miss equity rallies.

Instead, the bank has published a list of 40 worldwide stocks with weightings according to how they fared in Asia's SARS epidemic in 2003.

As examples, it recommends cutting holdings or even shorting the hotel and restaurant group OPAP, Hong Kong's Hang Seng Bank, the aerospace conglomerate EADS, and the car-leasing group Inchcape, while raising stakes in power companies and industrial groups such as General Electric. The assumption is that any pandemic will start in Asia.

Mr Harmstone said there could be a waterfall effect in the final phase of a pandemic where almost all stocks plunge together. "Once it goes global, investors may have to look at an outright short strategy," he said.

Bear Stearns said insurance companies with "longevity risk" through pension and annuity exposure could benefit as fatality rates jumped.