Most stocks are currently 20-30% lower than the high they started 2020 with. It sounds like a good time to invest. However, you need to be aware that not every company is going to recover to its glorious days because the new normal post Covid-19 is going to be quite different.
Let’s take the Singapore REITS stocks as an example. The revenue for REITS company come primarily from rental charged to their tenants. Hence, we should examine the impact of the pandemic on the tenant base of the REITS in question.
The Covid-19 pandemic forced every company to enable employees to work from home. It will certainly cause companies to reconsider their need for office properties going forward. Hence, REITS that focus on office rentals will certainly face challenges. Similarly, Mall REITS will also face challenges because a lot of shopping have gone online. Unless they have many tenants that provide onsite services, they will have tenancy challenges.
On the other hand, REITS that focus on hotels and service apartments may see gradual improvements when people start travelling again. Service apartments which have Long term tenants will fair better. Industrial REITS will probably continue to be strong because their tenants require space for their manufacturing operations. REITS with hospital properties are likely to be more resilient even in downturns.
The same rationale applies to other industries. Warren Buffett dumped his airline stocks. This is quite extreme. Personally, I believe people will fly again, but airlines will have to re-examine their operating model. With safe distancing requirements, they may have to carry fewer passengers per aircraft. As a result, they may have to charge more and balance the price elasticity of demand.
Grocery businesses will continue to be resilient. Likewise, pharmaceutical companies.
The Covid-19 struck hard at demand for goods and services. It forced all companies to re-examine their operating model, supply chain and even product line. So make sure you carefully examine all these before you invest. It’s a good time to enter the market, but you need to do it right. Investment is a personal matter. Don’t just take your banker’s advice. It is better that you understand why you should put money where they ought to be.