Ethiopian Airlines 737 crash hits Boeing shares
Stock fell as much as 8.7 per cent in Stuttgart and could slide in US trading as concerns are increasing over the jet
News of a Boeing 737 Max crash operated by Ethiopian Airlines is bringing out equity bears.
Futures contracts on the Dow Jones Industrial Average Index – where Boeing has the largest weighting – fell on Monday during Asian hours, sliding as much as 0.6 per cent after Flight ET302 plunged to the ground minutes after leaving Addis Ababa en route to Nairobi, Kenya, killing all 157 people on board. This is Boeing’s second 737 Max crash in five months. To make matters worse, China asked domestic airlines to temporarily ground those jets by 6pm local time, and Ethiopian Airlines said it would ground them until further notice.
Boeing shares fell as much as 8.7 per cent in Stuttgart and could slide in US trading as concerns are increasing over the jet, said Eleanor Creagh, a market strategist at Saxo Capital Markets in Sydney. Even a 5 per cent fall would cut more than 100 points from the Dow, she estimated. When a Lion Air plane of the same model sank into the Java Sea off the coast of Indonesia last year, killing 189 passengers and crew, the shares lost almost 7 per cent.
“Weakness transpiring in Boeing’s share price will hit the Dow,” Ms Creagh said. The stock has been responsible for about a third of the gains as markets recovered since the December low, she added.
Shares of the US manufacturer have gained 31 per cent this year, the most among Dow components and adding more than $55 billion in market cap. While that is partly due to the improving sentiment over the US-China trade talks, the company also reported a record cash pile for 2018, with sales reaching $100bn for the first time in its 102 years.
The weekend accident happened as the US stock market rebound is showing signs of strain. The S&P 500 Index posted its biggest weekly loss of the year as concerns surrounding global economic growth mounted. Risk appetite has weakened and the bar for positive surprises is now higher after a more than $9 trillion global equity rally since a December low. The Dow, where Boeing has an 11 per cent weighting, dropped 2.2 per cent last week.
In a March 11 report, Morgan Stanley said it expects a “degree of weakness and volatility” in the shares until there is clarity on what happened with this crash, adding it is premature to make any linkage to the Lion Air accident.
Updated: March 11, 2019 12:17 PM