Thursday, July 30, 2020

We Shall Go Fo(u)rth, Regardless

Today marks the fourth anniversary of the Bedokian Portfolio blog.


Dark clouds of (technical) recession are already upon us, and the effects of it are already being felt, with businesses closing and retrenchments beginning. All these can be attributed to the prevalent economy-slowing COVID-19 pandemic, which at this point is still showing no signs of abatement. Second or third waves were already reported in places where it was brought under control previously, prompting the reinstatement of containment measures such as lockdowns and limited gatherings. Though the rush for the vaccine was on, there is none yet approved for use by the mass population. Governments around the world have or have had rolled out stimulus packages to get the economy going and temporary reliefs to tide things over, such as the lowering of interest rates and asset purchases in the United States, and locally the introduction of the four budgets (Unity, Resilience, Solidarity and Fortitude).


Despite the doom and gloom of these times, there are still some silver linings amongst the dark clouds. Several sectors and industries are experiencing a boom, noticeably those which present alternatives or substitutes to the normal (or pre-COVID-19) way of things. A good example is video conferencing tool Zoom, one of the get-arounds of physical meetings; its stock returns year-to-date (YTD) was about 270%. Another was e-commerce giant Amazon, seen as a proxy to physical shopping, had a YTD returns of 64%. 


Adding on, sectors and industries that support the ones mentioned in the previous paragraph are also showing resilience, like for instance representing data centres is Keppel DC REIT, which gave a YTD performance of almost 45%, even though its price nosedived during the first half of March. Mobile payment ETF IPAY stood firm at 6% YTD, after experiencing the same nosedive as Keppel DC REIT back in March, too.


Unlike the Global Financial Crisis back in 2008/2009, this current situation is not a liquidity crisis, where there is not enough liquidity or cash and credit flowing around the economy. Rather, it is a fall of demand and supply of goods and services resulting from the countermeasures, regulated or not, towards COVID-19. This could explain why there was a sudden rush for goods and services at some countries the moment the stringent measures were lifted or eased (e.g. our transition to Phase 2); the so-called “pent-up demand”.


However, as per my economic machine analogy herethe longer the economic slow-down, other segments of the economy will slow or worse, grind to a halt. This causes a lagging downstream effect that we are feeling now. A good associative example: viral outbreak > reduction of travelling > tourism reduced > air travel reduced > airline profits down > aviation sector hit. This was why some countries would want the economic machine to keep going, albeit with safe practices such as safe distancing, work-from-home and donning masks. Short of a vaccine, which may probably take at least half-year more for mass usage, this would be the best way going forward to get things back to normal (old or new).


No matter what life throws at us, we shall go forth, regardless.

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