Pandora’s Box Has Been Opened


It happened much later than one would have expected but two cases of the coronavirus in Jakarta were finally confirmed on 2nd March. The public reaction was predictable; within hours, videos were circulating on social media of crowds panic-buying in supermarkets and of empty shelves. The next day I had to line up as I entered my office at the World Trade Centre to have my temperature checked.

I am not sure what would have happened if it was above normal. Maybe sent home or whisked away to some secure location?

The fact is, having watched for weeks the impact of the   virus on more than 50 other countries, we know for sure that it is now officially on our doorstep. At least in Jakarta, and there is little doubt it will raise its head soon in other parts of Indonesia, including Bali.

Of course Bali, even without having its own cases, has already been impacted. Anyone who is involved in the tourist and travel or related  industries is now severely challenged.

 

So much for the problem, but what are the solutions?

Seasoned hospitality professionals will be no strangers to business disruptions and disasters. They will already have contingency plans such as discounts, special offers, maintenance and improvement projects, temporary staff layoffs where inevitable and so on.

Those who have followed good financial planning principles will also have ample cash reserves to cover such contingencies and will also have avoided the temptation to have all their eggs in a single business basket. They will have investments and pensions that are tailored for the long term but which are nevertheless sufficiently liquid to call upon in an emergency.

What you don’t need now is a second disaster that could really make life difficult for yourself and/or others. And that would be a medical crisis or worse. Most expatriates have some form of international medical insurance. Due to the rising cost with age some older ones resort to cover by the local BJPS, which while far from perfect does provide some benefits and a degree of comfort.

Life and critical illness cover, however, is often overlooked. Note that the latter is unlikely to cover the coronavirus, although medical insurance certainly would unless a pandemic becomes so burdensome to the insurers that they are forced to exclude it! Unlikely however, as the virus usually results in a limited number of days in hospital and does not incur the scale of costs of cancer treatment for example.

Situations like the present are invariably stressful. This in turn increases the possibility of falling ill or in extreme cases, death. So while a downturn in business can put pressure on the budget, the outcome can be devastating for the individual or the family if no protection is in place. Whole life or level term insurance policies can be expensive but it is possible to take out cover for just a year at a time. This is relatively inexpensive but could provide cover through a period of uncertainty and until business returns to normal. A decision as to whether to renew can be taken on an annual basis, keeping in mind that the premium would increase annually with age.

Here is a scary statistic from a Zurich Life report on claims in the Middle East from 2017 to 2019. The average age of a claimant for critical illness cover was 49 while the average age for a death claim was 51. Heart attacks and strokes were the leading causes of death, representing 39% of claims.

 

What about personal investments?

Two months ago there was a real possibility of a major conflagration in the Middle East as tensions grew between the US and Iran. I suggested what effect this might have globally, namely disruption to the travel and tourist industry and stock market volatility. I also suggested money would flee to ‘save haven’ currencies while emerging market currencies, which include the Rupiah, would suffer.

All these consequences have indeed materialised, but ironically not because of a Middle East crisis but due to a new global enemy, the coronavirus, or Covid19 as it has now been named.

Only one prediction failed to materialise, namely the cost of oil and energy. This was expected to balloon in the event of disruption to global supplies. Instead, the global economic slowdown resulting from the coronavirus has caused a fall in oil prices.

Stock markets have tumbled, yet there have been occasional positive days. Volatility has certainly been extreme; the main Dow index in the US has seen both record falls and record rallies in single days, all in the space of a week. But overall it seems we are left with a loss across the board in the region of 10%. Holders of money funds, bonds, balanced funds, gold and other asset classes I suggested would have fared better.

The big question now is whether you should take further defensive measures to protect your portfolio, should you just hold your position or take advantage of lower market prices to add to your investments? The dilemma is one frequently facing investors: if you buy today you get a 10% discount. But if you wait a week it could be a 20% discount – or the discount could disappear altogether! I have to say that most investors in this situation tend to hold. The worst thing to do is to sell; by so doing you are locking in losses.

The most astute investor in the world, Warren Buffett, summed up the situation recently on CNBC with the following words of wisdom: ‘’Now Coronavirus is front and centre but something else will be front and centre in six months, or a year from now or two years from now. The real question is where are these businesses (stocks) going to be in 5, 10, 20 years’ time.’’

It is interesting to note that despite Warren Buffett’s conviction that people should remain solidly invested, his company Berkshire Hathaway is currently sitting on US$128 billion in cash. That is roughly the size of Indonesia’s entire foreign reserves. The reason undoubtedly is that he is patiently looking for companies to buy that represent good value. You may think it worth waiting to see what he invests in and then follow him. Almost  certainly you will be too late; the mere fact of a Buffett purchase is likely to push up the price.

 

If you can’t beat him, join him

This could be the solution and you will then continue to benefit from the long term growth that has been the hallmark of his investments. Just one snag; the price of a single share in Berkshire Hathaway at the time of writing is US$313,914. Any takers? Just let me know how many shares you want and I will send you the transfer details.

Or perhaps wait a few days to see if the price drops a little and in the meantime stop dreaming and come back to face the immediate reality of how best to cope with the present coronavirus scare and make sure you come through it in good shape to focus again on the long term.

 

You can read all past articles of Money Matters at www.BaliAdvertiser.biz

Copyright © 2020 Colin Bloodworth

 

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.

If you have any questions on this article or related topics you can contact at : colin.bloodworth@ppi-advisory.com or +62 21 2598 5087.