SINGAPORE (Mar 13): Global financial markets are experiencing what experts term to be a “carnage” after an announcement by the World Health Organization (WHO) terming Covid-19 a pandemic.
This was shortly after the plunge in oil prices the previous week following Saudi Arabia’s ignition of a price war with Russia after the breakdown in the OPEC+negotiations. This sent investors scurrying to mitigate losses and triggered massive sell-down in risk assets.
This week was far from a good one for both investors and companies alike, as they witnessed markets being pushed into bear levels as investor panic hit a crescendo.
Wall Street benchmarks plunged some 10% on Thursday, translating into its worst day since 1987, while the S&P 500 officially closed in a bear market on Thursday, booking a decline of some 26% from it’s record-high set in February. The Dow Jones Industrial Average too was not spared, and ended its historic 11-year bull market run on Wednesday.
Come Friday, the Singapore stock market is still reeling from the news. The benchmark Straits Times Index extended its decline by a further 6.2% as at 9.16am, shedding some 165.3 points. Some 308.1 million securities worth $369.6 million changed hands shortly after market open.
The way DBS Bank chief investment officer Hou Wey Fook sees it, this is 2008 all over again as the carnage in global markets
“Given the numerous unknown unknowns surrounding this outbreak, markets are swiftly pricing in the worst-case scenario of an imminent recession,” says Hou.
But amid fears of the worst, market watchers have some advice for investors.
Stay invested
Hou says that while the global economy is down, it is definitely not out. “Markets [are] in panic mode; but rationality will eventually prevail,” says Hou. His advice to investors is simple: stay invested nonetheless and wait for the storm to blow over.
“Given the disruption inflicted on global supply chains and domestic consumption as a result of the viral outbreak, economic growth will take a dent in coming quarters,” says Hou.
“There is, however, no visibility at this juncture. Investors should instead adopt a longer-term view. This outbreak has no bearing on the structural outlook of the economy. It is a transitory supply shock that will eventually fade away as summer time approaches,” he adds.
In particular, Andrew Slimmon of Morgan Stanley chooses to remain particularly bullish on Asian equities.
“I do take solace in the performance of Asia, as it is the first region to contain the virus and their markets have recovered first,” says Slimmon.
“I do not think the market is going to get a lot uglier because it will price in the recovery quite rapidly as evidence in Chinese equities and in previous health scare incidents,” he adds.
Recession scares
As the global economy grinds to a halt, investors have good reason to believe that a recession is well underway. But Slimmon urges them to remember that a recession constitutes two consecutive quarters of negative growth.
“To believe in a recession, you have to believe that we will be fighting the coronavirus and its damaging economic effects well into the summer. I think that is highly unlikely,” says Slimmon.
For one, Slimmon says that the global economy was on solid ground when the shock hit, in terms of strong housing statistics, retail sales and employment figures.
He also notes that plummeting interest rates will usher a new round of mortgage refinancing, which will in turn put more money into consumers’ pockets.
According to Kelvin Tay, regional chief investment officer at UBS, certain catalysts could trigger an earlier than expected recovery of the markets.
These include the announcement of concrete US fiscal stimulus measures or further details on the deferment of the US payroll tax, as well as evidence that the spread has been contained and that clinical trials on treatment for the virus are close to market.
Another catalyst includes the US Federal Reserve’s move to further slash rates, and Tay shares that the market is now hoping for an unprecedented cut to zero in the coming week.
Tay also has his own ideas about which stocks could either benefit from the market turmoil, or rebound first.
“The events over the last few weeks have clearly stressed the importance of digital connectivity,” he says.
“In that sense, we believe stocks in the 5G, cloud computing, digital transformation and connectivity sectors are clear winners,” he adds.
