When I wrote my last article two issues ago there was a real possibility of a major conflict arising in the Middle East following the assassination by the US of Iran’s second most powerful figure, Qasem Soleimani. There was potential for disruption to airline travel, the tourist industry and stock market volatility.
Ironically these consequences have materialised, although not due to the Iran conflict but to an act of nature, the novel coronavirus that has swept through China and has now invaded many other countries. At the time of writing no cases have been reported in Indonesia, which is surprising as all the surrounding countries report cases and Indonesia receives many visitors from China through over 100 international entry points. I would be very surprised if cases have still not been reported by the publication date. Although the flow of visitors to Bali has been halted there is still a risk of the virus being around in view of the incubation period.
Bali may be lucky and escape but it would be only sensible to assume at this point in time that there will be cases and to be ready to take reasonable precautions should cases occur. Other columns are better placed to give advice on specific precautions such as health but this column will stick to the financial aspects.
Most businesses in Bali could take a hit; some already have. When tourists stay away it is an opportunity to take stock, refurbish or conduct any maintenance tasks that are hard to accomplish when there is an abundance of tourists. Just like following SARS, bombings, volcanic eruptions and other past disruptions the tourists will be back, and in greater numbers.
Where investments are concerned and as I predicted four weeks ago we have already seen some limited flight to ‘safe haven’ currencies such as the Yen and Swiss Franc. The US Dollar can also be expected to strengthen against emerging market currencies, particularly Asian ones. China’s economy will invariably take the biggest hit although their economy is many times stronger than it was during the SARS outbreak. Gold has also moved up a little. These trends could continue so long as the virus keeps spreading.
Global stock markets have already fallen but not as yet to a great degree, apart from China. As with every crisis, stocks will bounce back so long term investors should not panic. The problem with trying to time the market is that when people run for the doors they invariably creep back way after the markets have staged most of their recovery. Nevertheless, for those who do not like roller-coasters there are ample opportunities to diversify into balanced funds or less volatile asset classes such as bonds.
Fires, floods and tempests
Apart from the latest epidemic many countries have had more than their fair share of disasters this and last year. Indonesia is no stranger to natural disasters. In Jakarta last year we had five months without rain that resulted in very high pollution levels. Finally some respite when the first rains fell but we had more than we could have wished for by the first week in January when flash floods led to more than 60 deaths. Australia had a disastrous drought also but far more serious as it led to weeks of unprecedented forest fires bringing death and destruction, including the death of an estimated billion animals. Again, the drought was interspersed with bouts of heavy rain and flooding.
Why is the climate getting out of balance? Donald Trump would disagree but the vast majority of scientific opinion believes mankind has contributed significantly to global warming and climate change and only mankind can rectify the situation.
If you have investments or a private pension plan you can actually help influence the corporate world by avoiding investing in companies or funds that are not making a positive contribution to the sustainability of the planet. So-called ethical funds have been around for decades. Initially they were simply funds that avoided investing in companies that were involved in ‘undesirable’ activities such as alcohol, arms production or gambling. The funds were not terribly popular as they generally underperformed those that were involved in those activities.
But today it is very different. ‘Ethical’ funds have evolved into funds that set high environmental, sustainable and governance (ESG) standards. And they no longer underperform the general markets. Several last year produced returns in excess of 25%. People are placing increasing value on companies and funds that are not just ethical but have sustainable policies and which are governed professionally and responsibly. Similarly, many shareholders are becoming activists and are forcing big companies to change their policies. Major oil companies are typical targets. The coal industry is under attack also. Governments are also under strong pressure to get their acts together or lose votes.
At the end of the day, money talks. But there is still a lot of money to be made in the extraction industries and not all governments are prepared to make sacrifices that could reduce their income. The only thing that will change them is people power and voter pressure. That’s where everyone can play their part.
Colin Bloodworth, Chartered Member of the Chartered Institute for
Securities and Investment (UK), has spent over 20 years in Indonesia.
He is based in Jakarta but visits Bali regularly.
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