COVID-19 Situation and Impact On the Markets

Singapore now ranks the second for most cases of COVID-19 outside of China that is if you exclude the cruise ship. The impact of COVID-19 already exceeded the economic impact of SARS and the prospects of recession is quite possible.

A lot has happened since the first post I had written on the COVID-19 outbreak. As more deaths are reported each day, one wonders to what extend has the impact of the virus be on the global economy.

Outbreak Summary

Source: Dashboard from Johns Hopkins University Center for Systems Science Engineering

Total confirmed cases worldwide is 67,188 with a total of 1,527 deaths and 8,580 recoveries.

Economic Impact

Retail, Tourism and Air Travel Sectors

The most obvious impact is on the retail, tourism and air travel sectors. This is especially in China were the malls are closed and flights to and out of China have been greatly reduced and restricted.

Even Singapore is not spared as the number of tourists and air traffic through the city has declined due to the virus. Singapore Tourism Board had forecasted a 25 to 30% decline in tourist arrivals.

Energy Sector

It comes as no surprise as China is one of the largest consumer of oil. Demands for oil had been projected to fall for the first time in decade due to the outbreak.

Since the beginning of the outbreak, the oil prices had plunged 20%. This is not the best situation for Singapore as the oil & gas industry makes up a significant portion of its economy.

Global Supply Chains

As it turns out, many industries around the world depend on China for parts and materials in their global supply chains.

It has been difficult for China to resume all of its manufacturing operations after a two week break since the Lunar New Year resulting in a huge disruption of the supply chain for the manufacturing industry.

Automotive industry in US and EU is especially affect by this. Wuhan happens to be the hub for car parts and accessories and have numerous large factories situated in it.

Of course, this means global shipping will take a hit which impacts Singapore.

Banking

The financial sector will be affected as businesses take a hit from the virus.

Firstly, due to disruption in the sectors mentioned above, businesses will be forced to either cut down expansion plans or take up more loans to stay afloat from the banks.

The government might also force banks to take up more risky loans and try to keep many SMEs running. This might mean an increased default rate for the banks.

Investor confidence might also take a hit and the expansion plans of many multinational companies into China may be delayed.

Other impact

Asia Pacific currencies tumble due to the weaker economic outlook due to COVID-19 and China slowing down.

There also might be some potential political instability due to the handle of the outbreak due to the Chinese government. The Chinese people are angry about the government’s cover up attempts and the silencing of whistleblowers who tried to warn the public about the new virus.

An environment of uncertainty. This is arguably the most insidious impact on the markets as business owners, investors are unsure and continue to cut back and wait. And as economic activity reduces, more investment activity decreases. This then becomes a self fulfilling prophecy resulting in a recession.

All Doom and Gloom but Markets are still Soaring

S&P 500 and Europe’s Stoxx 600 equities continue to hit all times high despite the economic impact of the virus. Asian markets are less optimistic and have had drops.

This might be due to the intervention (or the belief of intervention) of central banks worldwide. China’s central bank had pumped in $243 billion into the financial markets during the onset of the outbreak. The US Fed is also prepared to take monetary policy actions to keep the financial markets stable.

Conclusion

The extend of damage to the global economy is not fully known.

In every sector mentioned above, Singapore is heavily invested and a slow down in each will no doubt have repurcussions on it’s local economy.

What should us investors respond?

Same as always: diversify and stay invested in the market.

It is important to diversify across all sectors and all countries.

No one knows how the stock market would react. No one can be sure that monetary policies could for certain have an impact. So just stay in the market and hopefully things will get better sooner rather than later.

Author: Fatty's Finance

Finance is like health. It becomes an issue if it is not well maintained. I want to help you get back in shape!

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