Signs of Life at The End of The Tunnel

Money Matters appears every two issues, hence one every four weeks. Just two issues ago our main concern was the growing conflict between the US and Iran and its possible impact on global business and investments.

By the time of the next article the threat had evaporated and a new, unexpected threat to humanity, the coronavirus, emerged from Wuhan in China, spreading quickly to South Korea, then Iran and a host of European countries, finally emerging early March with the first two cases in Indonesia. Soon, the epicentre moved from China to Europe and now it is the previously complacent US that is becoming the major focus.

Indonesia, especially (and surprisingly) Bali, have been affected very lightly compared to Europe and the US. Fears are that the statistics are understated as there has been very little testing, but the authorities are now imposing measures to try and contain any outbreak. There is a theory that hot climates are hostile to the virus but this is just a hope and is not backed, as yet anyway, by any evidence. In the meantime we have to work from home to the extent we can and sit it out.

Ironically, Bali with its very few reported cases at the time of writing, is one of the hardest hit places in the world business-wise as it depends so heavily on tourism, an industry that has come to an abrupt halt across the world.

Our hearts go out to all the readers directly affected and the tens of thousands of small traders and workers whose livelihood depends on the flow of millions of tourists. Bali, of course, is accustomed to handling crises that impact tourism such as bombings and volcanic eruptions, but has always recovered quickly. With no certain end in sight, it may take longer than usual to return to normality on this occasion.

But return to normality it will

Let’s look at some of the good news. Life is starting to return to normal in most of China, including the city of Wuhan, the Ground Zero of the pandemic. South Korea too has broken the back of the outbreak and is returning to normal. All this has been within a timespan of less than three months, which shows what can be done when a government and its people take a firm and disciplined approach. Given that the outbreak was first confirmed in Indonesia early March, a return to normality could theoretically be projected to early June. But much depends on the evolution of the disease and what actions are taken to control it.

Given that travel restrictions are being applied across the world and many populations are in lockdown or confinement to home, there could be a considerable pent-up demand for travel and holidays. So for those in the industry it would be worth spending a bit of time planning how to meet the demand. If nothing else it will be something positive to address in place of the present focus.

Brighter news on the investment front

March was a savage month for investors and those with equity-linked pension plans. Trillions of dollars were wiped off market values, the greatest dollar fall since the Great Depression. But savvy investors looking at the long term see market crashes as opportunities rather than disasters. Here’s a recent quote on CNBC from Warren Buffett, the famous investment guru:

‘’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.’’

Further encouraging points:

* At the end of March the US markets gained over 10% on the news of the government’s $2 trillion spending
package. If you are looking for the bottom of the market you may think you have missed out on 10% but we can
expect more volatility, although the gain shows that the freefall we saw in March can be halted. As the package
works its way through the economy we should see the results seeping through and with a bit of global spillover.

* The best returns tend to come from the point of greatest pessimism.

* Markets tend to anticipate and recover long before the economy.

* Despite emergency working arrangements it is still possible for expatriates to open an offshore investment
account / platform and select investments at pre-bull market prices and which offer good prospects for future
growth.

* The coronavirus is shifting the focus towards ESG (Environmental, Social and Governance). This implies that it is forcing people to think more seriously about the sustainability of our planet. For example, people will be more inclined to invest in alternative and sustainable energy sources and less into fossil fuel sources.

* While industries linked to travel and tourism have taken a big hit, other sectors involved in distribution such as Amazon or in entertainment such as Netflix are booming as a result of the current work-from-home advice. Shares in these companies can be accessed via funds specialising in the tech. sector.

The irony of the situation is that when the pandemic is over the Chinese economy will probably emerge much stronger than that of America. Perhaps a tribute to their leadership and discipline. Both China and South Korea showed how to control and overcome the virus, lessons that other countries do not seem to have learned. But learn they will, and at some point the corner will be turned.

In the meantime the priority for everyone is to follow the rules. Stay safe!

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.