SINGAPORE (Jan 28): Following the long Lunar New Year weekend, local stocks slumped first thing on Tuesday morning in tandem with heightened fears about the looming Wuhan coronavirus.
The benchmark Straits Times Index (STI) fell 2.25%, or 73 points, to 3,167.02 shortly after the market opened, with some 227 million securities worth $250.8 million changing hands.
As trading resumed after the mid-day break, it became clear that the sell-off was unlikely to wane anytime soon. As at 1.05pm, the STI had plunged some 2.49%, or 80.66 points, to 3,159.36.
Although concerning, the economic impact of the Wuhan virus on the city-state was not entirely unexpected.
On Monday, Minister for Trade and Industry Chan Chun Sing noted that the outbreak is expected to persist for some time. “We certainly expect there to be an impact on our economy, business and consumer confidence this year,” said Chan at a press conference on the Wuhan coronavirus at the national press center.
“As in the previous episodes like SARS, our measures to help our businesses and enterprises can include reducing business costs, alleviating their cash flows and the retention of their workers,” added Chan.
See: Singapore confirms first case of Wuhan virus. Here's what investors need to know.
Uncertainty lingers
On Monday, the Ministry of Health issued a statement saying the total number of confirmed virus cases in Singapore stands at five, with test results for the remaining 57 suspected cases still pending. 62 of the patients who were previously classified as suspected cases have tested negative for the coronavirus.
However, experts are quick to highlight how uncertainty is still the root of the virus.
“This is a new virus – not much is known about this. The situation is developing rapidly with new information and news coming out of China everyday,” stressed National Development Minister Lawrence Wong on Monday.
“We fully expect that we have to fully adjust and recalibrate our plans and measures over time. The key is to be able to adjust and recalibrate swiftly,” added Wong, who also co-chairs a multi-ministry task force to combat the virus.
Although Wong acknowledged that it was too early to compare the Wuhan virus to the Severe Acute Respiratory Syndrome epidemic back in 2003, he emphasised that Singaporeans should be well-prepared nonetheless.
“We have no evidence that there is community spread of this virus in Singapore. But it may happen and if it does, we stand ready to take additional measures,” said Wong.
Lawrence Loh, an associate professor at the NUS Business School, chooses to seek optimism in the fact that Singapore has been fairly successful in containing the virus thus far.
“It’s hard to say when Singapore will make the quantum leap from having imported virus cases, to a full-blown community spread,” Loh tells The Edge Singapore in a phone interview.
“The next 14 days marks a critical period for all the countries affected by the virus. While China is still on an uptrend in terms of its virus cases, Singapore is still at the critical cusp of uncertainty,” he adds.
OCBC Bank's head of treasury research and strategy Selena Ling notes that effects of the virus remain “fairly muted” in Singapore for now.
“The Wuhan virus has a mortality rate of 2-3%, compared to SARS which had a mortality rate of about 10%,” Ling tells The Edge Singapore in a phone interview. “The impact on the local stock market today is more of a knee-jerk reaction to the uncertainty, not about the actual impact on human life” she adds.
Worst is yet to come
“Looking at how this is going, things are likely to get worse before they get better,” says Loh.
The way Loh sees it, sectors such as hospitality, tourism, hotels and F&B are likely to bear the brunt of the saga.
“If the situation worsens, broader sectors such as retail might even be affected,” adds Loh.
CGS-CIMB analyst Lim Siew Khee notes that the STI could see a further slide should the situation escalate.
“We think [the STI] could see 6-12% downside risk from current levels if the global pandemic of novel coronavirus worsens and death toll accelerates,” says Lim in a report on Jan 22.
Lim notes how, similar to the SARS outbreak, the most vulnerable sectors include aviation, gaming, hospitality, consumer discretionary and those with China exposure.
"For Singapore Airlines, we expect a SARS-like impact on its passenger traffic and financial performance if the coronavirus outbreak sweeps across Asia. Hospitality names such as Far East Hospitality Trust could see the largest impact given its 41% of variable income exposure to Singapore," shares Lim.
“Consumer discretionary proxies such as city shopping malls and outlet malls are also at risk, including Starhill Global and SPH REIT,” adds Lim.
See: Sasseur REIT shutters all 4 outlet malls in China until further notice amid Wuhan virus outbreak; shares plunge 10% on opening
On the flipside, Lim says that potential beneficiaries include glove manufacturer Riverstone Holdings, as well as healthcare provider Raffles Medical which would benefit from higher patient footfall redirected from public hospitals and more vaccinations.
See: Healthcare and glove stocks march on as Wuhan virus continues spread, claims higher deaths
“We would like to highlight that the market has become increasingly immune to event-driven shocks since 2003 as global governments are more prepared for public-health emergencies,” says Lim.
OCBC’s Ling attests that the Singapore government’s relief measures are an indication that things could get worse.
“Most governments are now more alert in terms of contingency plans and prevention,” says Ling. “But for investors, I don’t think there is a need to panic although they should remain watchful about a potential decline in growth.”
Cautious but not pessimistic
Although the low prices on the stock market may beckon to investors, Loh advises that investors exercise some caution during this period instead of jumping in with both feet.
“This is definitely the right time to remain cautious. Investors’ expectations should remain subdued, but not pessimistic,” says Loh.
Loh notes that Singapore’s economy had contracted by some 7% in 2QFY2003 during the SARS outbreak, as several sectors registered declines.
“In my view, the market reaction today pales in comparison to the severity of the situation. I think there is even more uncertainty now than compared to the SARS period, due to the announcements from China as well as longer incubation periods,” says Loh.
“Given the situation, both investors and businesses have to be careful. Singapore is still at the point of hoping for the best, while preparing for the worst,” he adds.
OCBC’s Ling had previously forecasted a 1-2% growth for the Singapore economy for 2020, due to the “green shoots” that signalled a bottoming-out of the economy. However, she has taken to revising the estimate to 0-2% to factor in the effects of the virus.
“We think it would be more prudent to price in some of the downside risks,” says Ling. “It would be wise for investors and companies alike to avoid a risk-borne approach, but instead be more nimble.”
