Why Did Shares of Xiabuxiabu Plunge by Over 10% Today?

What happened

Renowned China-based hotpot operator Xiabuxiabu Catering Management China Holdings (SEHK: 520) saw its shares plunge by as much as 12% today in Hong Kong trading.

The company’s shares eventually finished the day down 10.5% at HK$7.42. This was a lot worse than the benchmark Hang Seng Index, which finished Monday with a decline of 2.2%.

The broader stock market in Hong Kong fell back for a fourth consecutive session on Monday as worries mounted over a “second wave” of coronavirus infections globally.

Worsening numbers out of the US over the weekend and a spike in new cases in Beijing put investors on edge that a V-shaped recovery in the global economy was far from assured.

So what

It was on the back of this news that Xiabuxiabu saw its share price plunged. But how come shares in its more well-known hotpot peer Haidilao International Holding Ltd (SEHK: 6862) only saw a 5% fall?

It was down to the location of restaurants. With fears growing on a second wave of infections, the epicenter in China was Beijing. The capital city declared it had seen 79 infections in Beijing over the weekend, with the source being identified as the Xinfadi market.

Xiabuxiabu, as a Beijing-headquartered firm, has over 200 of its restaurants in the capital. Meanwhile, Haidilao is headquartered in Sichuan and has a greater international presence than its competitor.

Now what

It was perhaps a timely reminder for investors that we are by no means “out of the woods” with the Covid-19 pandemic. A second wave of infections could easily derail any tentative recovery and put cities (and countries) back in lockdown.

This would be especially damaging to companies such as restaurant operators, casinos, and travel firms – many of which are listed on Hong Kong’s stock market.

For longer-term investors, it may be an opportunity to pick up quality businesses that are “on sale” but we should also remember that the post-pandemic economy could look very different to the one that existed at the end of 2019.