SINGAPORE (Feb 14): Over the past few weeks, we have been bombarded with blow-by-blow accounts of the coronavirus outbreak, including the extended lockdown in China, the widening range of containment measures taken by the rest of the world, the rising number of people infected and the death toll. And yes, the coronavirus that has hogged headlines around the world now has a name: Covid-19.
There is no escaping the plethora of narratives, real and fake, in both the mainstream media and on social media. Indeed, we are witnessing how sensationalisation of the outbreak has the power to send normal, rational people into mass hysteria — as evidenced by photos and videos of people emptying supermarket shelves and long, snaking queues for face masks.
We can understand why people are rushing to buy face masks (despite evidence of their very limited effectiveness as a protection against infection), hand sanitisers, instant noodles, rice and canned food. But the hoarding of toilet paper and carbonated soft drinks? Surely this is a signal for investors and the public to stop and take a really hard look at Covid-19 — based on facts.
We are, by no means, experts on the virus. But here are some common facts gathered from various sources.
As at Feb 11, there were 45,170 laboratory-confirmed cases worldwide. The cumulative infected cases is rising, but the number of daily new cases has been in decline since peaking on Feb 4.
In its latest update on Feb 12, the Chinese government reported a significant rise in cases, after widening its definition to “clinically diagnosed” — which is based on signs and symptoms — instead of the previous “laboratory confirmed” (see Chart 1). As a result, Feb 12 saw the largest single-day rise since the outbreak started, bringing cumulative cases to 60,280.
The death toll also rose sharply on Feb 12, to 1,367 from 1,115 the previous day — but this is a lagging number and to be expected (see Chart 2).
Clearly, these tallies are not 100% accurate. There is likely still significant under-reporting. China runs an authoritarian bureaucratic system that is opaque and closely managed by the central government. Still, let us put current known numbers into perspective.
While comparisons to the Spanish flu, one of the deadliest influenza pandemics in history, make for eye-catching headlines, they are very far apart, in terms of scale and fatality rate. The 1918 pandemic infected an estimated 500 million people, or more than a quarter of the world’s population then, and is estimated to have killed at least 50 million.
The fatality rate for Covid-19 is 2.3%, if we simplistically divide the number of deaths by total cases. In reality, the ratio is probably much lower, given the likely number of unreported cases, including people who are asymptomatic and merely mildly sickened, did not seek medical attention and were not hospitalised. There is also a shortage of testing kits. Indeed, many think the ratio of unreported cases is roughly 10:1.
Case in point: The number of cases outside China totals only 517, with just two deaths, implying a fatality rate of 0.4%. The Ebola virus has a fatality rate of between 25% and 90%, and an average of 50%, according to the World Health Organization (WHO), while MERS (Middle East Respiratory Syndrome) and SARS (Severe Acute Respiratory Syndrome) had fatality rates of about 35% and 10%, respectively.
The WHO estimates that annually, there are three to five million cases of severe illness from regular seasonal flu, resulting in 290,000 to 650,000 respiratory deaths worldwide.
In other words, the current coronavirus outbreak could well be classified as a severe form of the cold. So far, the confirmed cases suggest the most severely affected are the elderly and those with underlying health and respiratory issues.
Most of us can quite effectively protect ourselves by practising good hygiene — washing our hands frequently with soap and water or using an alcohol-based hand sanitiser — not touching our face before cleaning our hands and avoiding crowds.
We are not downplaying the tragic cost of human lives or the hardship and economic consequences caused by the resulting lockdowns, quarantines and disruptions to the global supply chain. There will be serious short-term economic costs. But the facts do not warrant the degree of panic and hysteria that is unfolding around the world, an environment that is perpetuated by the media sensationalising the outbreak.
Fearmongers and those who spread fake news often have their own agendas — to sell more products, gain notoriety, promote xenophobia and racism, further economic and political objectives, and so on and so forth.
Without doubt, sensationalism sells. And the ultimate sensationalism is when a credible media outlet such as the Financial Times suggests that this viral outbreak will bring down the Chinese Communist Party — something that significantly more serious challenges such as the Tiananmen Square massacre had failed to do. That is desperation, to out-sensationalise others.
Based on statistics, the Covid-19 outbreak appears to be waning. This could be due to the rapid response and more effective (somesay draconian) containment measures. It is also possible that the current slowdown is a temporary phase that could worsen again; for instance, if the virus mutates. Nobody knows for sure. But if the current trend persists, we need to be less pessimistic. Both the Global Portfolio and Malaysian Portfolio remain near fully invested.
Following the broad-based selloff, Asian equities are now trading at historical low valuations relative to US stocks (see Chart 3). Thus, it is a matter of when, not if, investors will switch from their current “risk off” mode back to emerging markets for higher returns.
It is notoriously difficult to time the market. But we wondered if there is a best day to buy stocks. Here are some of the fun statistics we discovered.
We compiled the daily price change for the Standard & Poor’s 500 index, FBM KLCI and Straits Times Index for the last 10 years (see Tables 1 to 3). Only Mondays are statistically significant — accounting for the most down days of the week, relative to the number of trading days.
This is not wholly unexpected. For one, companies are likely more inclined to release bad news after market close on Friday. This will allow time for analysts and investors to digest the news and minimise the odds of negative knee-jerk market-price reactions.
Mondays will also see larger reactions, owing to cumulative developments over the weekend, as opposed to just overnight events for a typical weekday. And bad news tends to have greater weightage than good news.
Perhaps it is simply the issue of “Monday blues” and we are less excited about buying stocks. As we settle into the new workweek, we should be progressively happier. Our actions are very much driven by emotions, and the stock market is a collective reflection of our actions.
Unsurprisingly, the CBOE Volatility Index is also significantly higher on Mondays, on average, over the past decade (see Table 4).
Tracking daily gains for the three bellwether indices gave the same corroborating results (see Charts 4 to 6). Mondays, on average, had the largest price declines while the rest of the week registered positive gains. The results suggest that investors should buy on Mondays and sell later in the week.
Of course, these are just broad market numbers, not the movements of individual stocks. These results are probably not very useful, except for perhaps algorithm-based trading, where cost is nearly zero. And for longer-term investors, stock prices are ultimately driven by the underlying fundamentals specific to the company.
The Global Portfolio gained 2.2% last week, doing better than the benchmark MSCI World Net Return index, which was up by a lesser 1.3%.
Shares for The Boeing Co recouped some lost ground, closing 5.4% higher for the week, while Alphabet, ServiceNow and Lennar also performed well. Only BMC Stock Holdings ended lower for the week, down 1.3%.
Last week’s gains boosted total returns for the Global Portfolio to another fresh record high of 27.8% since inception. This portfolio is outperforming the MSCI World Net Return Index, which is up 20.5% over the same period.
Tong Kooi Ong is the chairman of The Edge Media Group, which owns The Edge Singapore.
Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.
