Light at the end of the Tunnel

4 April 2020

Dear Fellow Investor,

Light at the end of the Tunnel

Comments from Mr Ang Kok Heng, CIO of Phillip Capital

Like the past virus epidemics, the whole trouble will be over within 3-6 months. China has

effectively proved that coronavirus is a transitory outbreak and the lockdowns in its various cities and provinces have been lifted. In fact, health workers are leaving Wuhan and factories are re-operating again. Korea, Taiwan, Hong Kong, Singapore, Japan  and Malaysia are taking strong action as infection rates slow and recovery rates increase.

Unfortunately, outside Asia the number of people infected by the Covid-19 virus has been escalating sharply, starting from Iran, Italy, Spain, UK, Belgium, Australia and Germany.

Authorities are now taking firmer action in these countries, closing beaches, night clubs, churches, mosques and parks. They have been strictly enforcing social distancing, quarantines  and even arresting resistors.  It is working and infection rates are slowing.    

Now the epicentre of this  pandemic has moved to the US and the authorities are taking stronger action to contain the outbreak.  President Trump has invoked the Defense Production Act a WW 2 law which in a national emergency forces manufactures to produce needed equipment such as ventilators, masks, test kits  etc. This insures there won’t be a shortage of vital life saving medical equipment.  Corporations such as GE and MMM joined forces  to produce ventilators and masks. It is happening now as Americans pull together to fight a common enemy.

 With this, the G20 has joint forces to pump in US$5tr to provide liquidity and provide some confidence to the financial markets.

How much will the economy be impacted by the lockdown and movement control in managing the Covid-19 depends upon the commitment by respective governments and effectiveness of their control measures. The sudden surge in new cases of the Covid-19 in  Europe and now the US has caused investors to flight for safe instruments i.e. the US dollar/ gold.

The sharp fall in the US markets in the middle of March was unprecedented. Most of the major stock markets have

plunged into bear markets (more than 20% decline) including the FBMKLCI which fell 34% by 19 March 2020 Some said the present Global Pandemic Crisis (GPC) could be worse than the Asia Financial Crisis (AFC) and Global Financial Crisis (GFC). The AFC was led by the collapse of the currencies in Asia, which caused several large corporations with large USD loans to collapse.

Meanwhile, the GFC was due to the collapse of the financial system as many banks were suffering from losses mainly driven by the subprime mortgages. As for the present GPC, the crisis is due to pandemic-led lockdowns resulting in supply chain disruptions and demand shutdown. Some supplies are unable to reach out to their consumers while most consumers are unable to go out to spend.

Bernanke, the former US Federal Reserve Chairman described the involuntary economic halt following the global Covid-19 outbreak is like a ‘major snowstorm’ which hits a country and resulting in severe losses to lives and properties. Such major calamity will be a setback to a country and it will lead to massive losses. Consequently, this requires the government to spend extensively in order to help its nation to go back to where it was.

Overall, we are confident that this pandemic is unlike crises experienced during the AFC and GFC. However, the ways the West handle this outbreak have not been promising. Stern efforts especially social distancing need to be stepped up further, same for Malaysia. The recent tightening of the MCO(Movement Control Order) is encouraging and hopefully we will see a marked improvement in the number of newly infected cases. For the time being, we are waiting for the number of new infected cases in the US and Europe to peak.

Since stock market is always trading ahead of the fundamentals, this is a good leading economic indicator

“Coronavirus economic halt is more like a ‘major snowstorm’ than an economic depression. This is very different animal than the Great Depression....expect a ‘very sharp US recession but also a fast recovery”. Ben Bernanke

Keep safe,

Bill

I hope you enjoy this amusing story 

Seattle area man arrested after allegedly letting his pit bull drive his 1996 Buick more than 100 MPH: report

A resident of the western US state of Washington was arrested following a high-speed chase that left officers dumbfounded after they found the man’s pit bull behind the wheel.

The incident unfolded Sunday afternoon after police received calls about a driver hitting two vehicles in an area south of Seattle and then speeding away, state trooper Heather Axtman told AFP.