Recovering from the Covid-19 recession & what this means to the investor

Last week, the Singapore government launched a 4th Budget to help businesses, households and workers survive the economic damage caused by the covid-19 pandemic. The total amount makes up close to S$100M – all of which were drawn from Singapore’s reserves.

Singapore did not have to take loans – thanks to many years of Budget surpluses saved for stormy days like this. However, we need to be prepared that economic recovery may not come in the form of a neat upward trajectory. Instead, it may be an L-shaped one because of the tremendous damage already done by the sudden demise of demand.

In fact, the effects of the recession may not be immediately felt because we may still be benefitting from the “balance” of Q1 2020, just before many economies went into lockdown mode. This is seen from the decline in bank loans for the second month.

Many businesses have closed. Some businesses thrive because of the nature of their industry. For example, those that supply pharmaceutical related products needed during the pandemic.

Others will need a new business model in order to thrive again. For example, sports. Two weeks ago, the German Football league restarted with matches played in empty stadiums. The match was broadcasted all over the world. In Denmark, fans are allowed to attend these matches using video conferencing software “Zoom”. Their cheers are projected in the stadium to re-create the atmosphere experienced when the fans were present onsite. Malls will need to find a different tenant mix – one where their tenants deliver services that draw consumers to their premises. Commercial offices may face challenges getting tenants as many people get used to working from home.

What do all these mean for any investor? The value of many stocks are currently 20-30% down from the days of the bull market. You need to seek out companies that have:

  • Strong business models, strategies & governance
  • Provide products & services where demand will return
  • Will immediately benefit from the lifting of lockdown measures

The 3rd point above is important because demand for the shares in these companies will already be trending upwards. It is therefore necessary to “catch” them before they get more “expensive”. Be prepared that you will not see short term recovery of these stocks to their pre Covid-19 days of glory. But for sure, they will certainly be higher than they are now. Think long term!

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