The news just keeps getting worse, it seems.
The COVID-19 pandemic has already produced a long list of “firsts” for blue-chip companies.
It is the first time Singapore Airlines Limited (SGX: C6L) has reported a full-year net loss.
And it is also the first time that ComfortDelGro Corporation Ltd’s (SGX: C52) taxi division is reporting a full-year loss.
Singapore’s economy was already expected to suffer its worst contraction ever, with the official GDP forecast at -1% to -4% for this year.
And now, the Ministry for Trade and Industry (MTI) has downgraded this forecast once again yesterday, with GDP expected to shrink by -4% to -7%.
If this comes to pass, it would be Singapore’s worst recession since its independence back in 1965.
With this unfavourable outlook, is it time for you to cut your losses and sell your entire investment portfolio?
Four rounds of budget assistance
The Singapore government has not stood idly by while the economy tanks.
A total of four budgets have been announced thus far, aptly named “Unity”, “Resilience”, “Solidarity” and “Fortitude”, respectively.
In total, S$92.9 billion or around 19.2% of GDP will be disbursed to help a wide-ranging list of businesses in different sectors such as aviation, tourism, construction and retail.
Aside from businesses, these budgets also contain measures to help individuals who may have lost their jobs or suffered financial hardship.
A strong focus on protecting livelihoods and jobs remains the essence of all four budgets.
With such strong support and assistance from the government, most of Singapore’s businesses should receive some form of financial help to tide over the tough times.
Not all industries are doing poorly
Although COVID-19 has caused significant misery to a variety of industries, not all sectors are negatively impacted.
For instance, glove making companies are benefiting from a surge in demand for protective wear, and utilisation rates are hitting the roof.
The biomedical field is also doing well, helping to prop up Singapore’s factory production for April by expanding 100.5% in April compared with the same period last year.
Companies such as iFAST Corporation Limited (SGX: AIY) have also seen a limited impact from the coronavirus, with the company reporting growing revenue and recovery of its assets under administration back to S$10 billion.
No perfect correlation
Investors should also remember that the real economy and stock market are not perfectly correlated.
Even while the country may be suffering from its worst economic performance in decades, the stock market could continue to do reasonably well.
Although this disconnect may defy expectations, the reason is simple enough — stock markets are forward-looking and incorporate optimism about the eventual recovery from COVID-19.
The GDP is a reflection of the overall economy, but you as an investor may own companies (as described above) that are less impacted by the pandemic.
Such resilient businesses will be better able to recover once normalcy returns.
Get Smart: Stick with the strong companies
It’s a bad idea to cut your losses just because the GDP forecasts keep getting revised downwards.
Should you sell your entire portfolio now for fear of a plunge in share prices that may or may not come, you will inevitably miss the recovery phase that comes after every crisis.
If you believe that certain businesses within your portfolio have a slim chance of recovery from the crisis, you can consider switching them for stronger, more resilient companies.
Strong companies with sturdy balance sheets will be able to survive the crisis and even come out stronger.
Innovation and a shift towards digital adoption may also reduce companies’ cost structure and enable them to better survive the pandemic.
Our belief for investors would be to stick with strong companies as they will be able to continue paying dividends and can ride through the crisis relatively unscathed.
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Disclaimer: Royston Yang owns shares in iFast Corporation Limited.