Pay cut, flights cut, earnings cut, but analysts urge for calm

However, markets around the world seemingly woke up to the surge in the number of Covid19 cases across multiple new locations, ranging from Italy to the US, and more spectacularly, South Korea. The US markets, for one, dropped 3% on Feb 26, as did markets around the world, in what can be described as a contagion effect in more ways than one.

Economists have trimmed their forecasts and companies have cut back on their operations. Singapore Airlines (SIA), which was forced to slash the frequency of its flights to China, has implemented hiring freeze and is mulling over no-pay leave. SIA shares closed on Feb 27 at $8.32 – the lowest level since 2014. The wider Singapore market dropped more than 3% from last Friday’s close, before ending on Thursday, Feb 27, at 3,112.57 points.

SIA isn’t alone. Temasek Holdings, the state investment company, was the first to say it is putting in place pay freezes as well as bonus cuts. Other government-linked companies such as CapitaLand, despite reporting an earnings improvement of more 20% between FY2018 and FY2019, as well as SMRT Corp, will be following suit.

Various companies, ranging from landlords, banks to insurers, tripped over one another to announce one variant of relief package for their customers, tenants, or in the case of the taxi companies, the drivers.

With case numbers surging by the day, investors are perhaps duly unnerved. Market experts are urging for calm. “The most important thing is not to panic,” says Michael Strobaek, Credit Suisse’s global chief investment officer. “While volatility is increasing and cyclical markets such as equities and commodities have suffered significant setbacks, we would argue that the fundamental situation of most asset classes has not changed all that much,” he says. Strobaek expects a relief rally in cyclical markets as the peak of the outbreak passes – although it is “very difficult” to time the market.

What investors shouldn’t do, is to cut their holdings and flee. “Reducing exposure now could mean missing out on the recovery later,” says Strobaek, adding that having a diversified portfolio is the best hedge in this current period of heightened volatility.

Now, if the markets drop more “meaningfully”, to Credit Suisse, it is an opportunity to load up more equities. “For now, however, it is prudent to stay on the sidelines with a neutral allocation to equities,” he says.

Similarly, UBS is urging investors to look out for bargains – where the recent damage has been. “We think investors should be buying the dip in emerging-market stocks and specifically Chinese stocks,” Maximilian Kunkel, chief investment officer for Germany at UBS Wealth Management, told Bloomberg. “You have a more attractive valuation and growth mix here, and also China seems to be containing the virus and getting back to business.”

Investors who are holding to safe-haven assets such as gold, are seeing further gains. “Precious metals’ prices continue to see support from concern that the spreading Covid-19 endemic would slow down global growth and force central banks to be more accommodative and boost stimulus measures,” says Avtar Sandu of Phillip Futures.

DBS’ chief investment officer Hou Wey Fook’s advice for investors is to stay focused on the longerterm thematic plays and not be overly concerned with the volatility. DBS favours US ecommerce companies, healthcare plays, as well as those in the vogue with Millennials, such as Beyond Meat.

“Often times, trying to gauge what is encapsulated in the price of a risk asset is more art than science. This time is no different. But our analysis provides us with a reasonable basis to conclude that the market might be looking oversold after last night’s price actions,” says Hou, referring to the 3% drop in US markets on Feb 26. “We believe that this viral outbreak is transitory and has no bearing on long-term secular trends,” he says.