Avoid these shares if we get a second wave

Investors could be putting their savings at risk by buying cheap-looking stocks as a second spike in coronavirus cases and another lockdown look increasingly likely.

Airlines, oil firms and banks have been some of the most bought companies since the stock market sell-off in March. They had been some of the biggest casualties of the crash.

But anyone who expects their share prices to bounce back quickly could be disappointed if the public health situation deteriorates, said David Coombs of Rathbones, the fund manager. Chinese and German stocks took a hit in June after a surge in new Covid-19 cases caused governments to reimpose restrictions.

“We fully expect there to be regional spikes in Britain too,” Mr Coombs said. “We are likely to suffer more than other countries as we don’t yet have a well developed ‘ track and trace’ system.”

The most obvious victim of a second virus wave in Britain would be the still-fragile hospitality sector. “We’d probably see a repeat of the

March sell-off, only exacerbated,” Mr Coombs said. “The sectors that suffered last time may do even worse.”

Aruna Karunathilake of Fidelity, a rival firm, said: “Pubs – which include the likes of JD Wetherspoon, Marston’s and Young’s – will certainly be hit hard in another lockdown, as will high street retailers.”

Data from China suggest that airlines and travel operators are the first to feel the effects of a lockdown being tightened.

EasyJet and International Consolidated Airlines, which owns British Airways, have consistently been among the most purchased stocks since the virus outbreak, according to brokers AJ Bell and Interactive Investor.

A second outbreak would mean further economic contraction and spell bad news for the big banks. Investors rushed to buy shares in Lloyds Banking Group and Barclays after their prices fell in March.

“If job losses escalate, more people will default on loans and mortgages,” Mr Coombs said. He added that some banks would suffer more than others. “RBS and Lloyds are both very focused on lending in Britain, whereas Barclays is more diversified,” he said. If people get into debt, utility firms will struggle too because of the extra costs of chasing defaults. Mr Coombs said even typically “defensive” stocks such as National Grid and SSE could be at risk. Miners and oil firms also tend to do worse in a downturn. Royal Dutch Shell and BP are among the 10 most purchased stocks this year on brokers’ websites and shares in both tumbled when oil prices fell in February. But investors who hope for a quick rebound may be disappointed. “You need economic activity for oil companies to do well. If there’s a second spike and business slows, that won’t happen,” Mr Coombs said.

The fall in easyJet’s share price in the year to June