Sunday, April 12, 2020

The Unprecedented Impact of COVID-19 on Businesses & Personal Life

In just 1 month since my last post, the COVID-19 situation has become much worse putting the world in lock-down mode in almost every country. Singapore is not spared either as non essential shops and workplaces were forced to shutdown and the streets become quiet. Dining in at restaurants and hawker centres are also no longer allowed. Most of us will have to work from home and public transport becomes virtually empty.

I am writing this experience down as a record for the future me to refer back to what we have all went through in unprecedented times like this. Neither me or my parents or anyone possibly alive now has lived through times like this unless you went through world war 2 back then. During the SARS outbreak back in 2003, we didn't experience such lock down like what we have experienced now also.

Businesses are affected badly in all aspects. It started with tourism when borders of countries closed, then lock downs happened to restrict social gatherings and movement of people within the country. Without the demand of spending from people, businesses are definitely affected. No revenue, no profits, increased losses. This is what is happening.

Stocks have fallen from their peak to a low of 2230 for STI. It has now recovered to above 2500. Many people will be wondering is this a real recovery or just a dead cat bounce? Unfortunately, I do not have the answer though. Through the ups and downs of the market, I admit I did have fears about whether I should be buying more stocks. Many stocks were at attractive valuations when it dropped at the start but it continued to dropped more to the tune of 20-30%.

Talking about valuations, during a market crash, it also becomes difficult to value a company. If you're buying REITs, many are at attractive dividend yield and price to book of 0.50-0.70. This is 50% lower than its book value. Dividend yield for most REITs are as high as 7-8% and even more than 10%. However, as businesses are affected, dividends will definitely be reduced. Think about shopping centres owned by REITs, most of the shops have to close and some may even shut down completely if they become insolvent. This will affect the rental the REITs receive from their tenants and in turn affect dividends given to shareholders. Dividends can be cut 50% or more depending on the severity.

The tourism industry suffered the greatest hit in this crisis and may take the longest to recover. This is probably why hospitality REITs took the worst dive in this downturn. Hotels have their occupancy dropped to 20-30% only from the high of 90% as tourists disappear. Stocks like SIA, SATS, Genting Singapore which are all tourism related are affected too. Nevertheless, I bought more of tourism related stocks and also other REITs as I believe this will recover when the whole virus situation is over, borders are opened again and we can go on with our daily lives. This will minimally take 1 year and as long as 2-3 years to recover so if you're buying stocks, do be prepared for the long road ahead.

The key in investing during such a crisis is to make sure the companies you invest in will survive. If the company becomes insolvent, then you may potentially lose all the money you invested. One example of a REIT which became insolvent is Eagle Hospitality trust. Invest in bigger companies with strong foundation, more cash and lesser debt is crucial during this period. If you do not know which company to pick, just invest in STI ETF or other index ETFs is also another choice. It is almost guaranteed that if you invest in index ETF during this period, you'll be able to see profits when the economy recovers.

We are now in circuit breaker mode in Singapore which the government calls it. This is essentially a lock down which we are experiencing. Social gatherings of any size is now ban in Singapore both in public and private places. The law is so strict that under the infectious control act, it states that a person must not meet another individual not living in the same place of residence for any social purpose. This means no meeting of your grandparents, parents, siblings, relatives and even boyfriend or girlfriend who are not living in the same place of residence as you. Failure to do so will result in a fine of up to $10,000 and jail of up to 6 months under the infectious disease act.

The broader purpose of the circuit breaker is to reduce the number of infections of COVID-19 so we can get back to our normal lives as fast as possible. This will need the cooperation of everyone to make it happen. A single gathering at Hero's pub of 9 people in Singapore lead to a spread of the virus to 12 others at an international school and Singapore cricket club and causing 1 of them to die from the virus itself. If we all do our part to stay at home as much as possible during this period, we can all help to break the transmission of the virus once and for all.

Let's all stay safe, stay at home and keep calm during this period