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The Wuhan Virus: What to Do When Your Stock Crashes

As diligent investors, we pride ourselves on doing a thorough job of analysing the risks and rewards relating to our investments.

We learn from past mistakes and also spend time ruminating on portfolio allocation in order to maximise our gains while minimising the risk of a permanent loss of capital.

While investing is, for the most part, smooth-sailing, there will inevitably be times of stress and trouble.

Life and business are both unpredictable, and even our best intentions and research may not steer us away from turmoil. Investors who have been through crises and downturns know this intuitively, but newer investors may be caught in a bind and not know exactly what to do.

The Coronavirus Scourge

Today, it would feel like the perfect storm has hit us.

Global growth has already been trending downwards after a bruising USA-China trade war when a sudden new scourge has reared its ugly head in the form of a novel coronavirus.

This new, deadly pathogen first appeared in Wuhan, China back in late-December and has, to date, sickened more than 20,000 people and killed nearly 500.

In an effort to contain the spread of this contagious bug, the Chinese government has taken draconian steps — locking down the cities of Wuhan and Wenzhou, and also shutting down numerous malls, cafes and tourist attractions.

The tourism and hospitality industries have been hard hit by a slew of measures implemented by countries such as the USA, Australia and Singapore limiting the entry of Chinese nationals until the outbreak has been controlled.

Portfolios in shock

The rapid spread of the virus has resulted in an equally rapid decline in stock prices in major markets such as China, Hong Kong and even Singapore.

Companies in industries that were directly linked to the virus, such as travel, tourism and hospitality, saw their share prices battered by poor sentiment and panic.

Take SATS Ltd (SGX: S58), for example. The group offers ground handling and food catering services to multiple airlines.

With the restriction of air travel and the anticipated sharp drop in the number of visitors from China, investors began dumping SATS’ shares, causing the share price to plunge from S$5.06 to the current S$4.48.

Two other examples of businesses directly affected are CapitaLand Retail China Trust (SGX: AU8U), or CRCT, as well as Straco Corporation Limited (SGX: S85).

The former owns 14 retail malls in China, of which one (in Wuhan) has temporarily been shut and the others operating on shorter hours. The latter owns two aquarium attractions in Shanghai and Xiamen, and both have had to temporarily shut to prevent the further spread of the virus.

Needless to say, CRCT’s share price is down 10% while Straco’s is down almost 19%.

Stand firm and think rationally

With all the fear and worry going around, I think it’s important, at this point, to remind investors to think rationally, rather than emotionally.

Of course, the fear of the new virus is understandable and palpable, but with the collective efforts of many groups of people and countries, it should be only a matter of time before the virus is contained.

So, slow down.

Take a break and carefully think through how the business will be impacted, and whether the problems will last.

The mall and tourism attraction closures are temporary, though the exact time period cannot be determined at this point. Businesses will definitely suffer from the impact of such closures, but if the business was strong to begin with, it should be able to overcome these challenges.

For a well-established business such as SATS, the management has a plan to grow the business over the next few years by opening more central kitchens in China in order to cater food to restaurants and dining establishments.

The outbreak of the virus will put a spanner in the works for now, but should not detract management from its long-term goals of growing SATS’ footprint and scale.

Get Smart: … and this too, shall pass

The media will continue to report every single minute detail about the Wuhan virus as it’s on top of everyone’s mind now.

Investors, though, need to remember a useful phrase: This too, shall pass.

It tells of how everything will eventually become history and that we, as humans, shall be able to overcome these temporary trials and tribulations.

In the meantime, potential investment opportunities are also appearing. For the investors who can stand firm and think rationally, they will be in a position to take advantage of such bargains.

We’re certainly thinking of doing so. This February, we are embarking on a new journey with our Smart Dividend Portfolio. We are going to start buying dividend stocks to build up our brand new portfolio. 15 stocks in the next 6 months, to be exact. Click HERE to learn more about The Smart Dividend Portfolio.

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The Smart Investor is not licensed or otherwise regulated by the Monetary Authority of Singapore, and in particular, is not licensed or regulated to carry on business in providing any financial advisory service.

Accordingly, any information provided on this site is meant purely for informational and investor educational purposes and should not be relied upon as financial advice. No information is presented with the intention to induce any reader to buy, sell, or hold a particular investment product or class of investment products. Rather, the information is presented for the purpose and intentions of educating readers on matters relating to financial literacy and investor education. Accordingly, any statement of opinion on this site is wholly generic and not tailored to take into account the personal needs and unique circumstances of any reader. The Smart Investor does not recommend any particular course of action in relation to any investment product or class of investment products. Readers are encouraged to exercise their own judgment and have regard to their own personal needs and circumstances before making any investment decision, and not rely on any statement of opinion that may be found on this site.

Disclaimer: Royston Yang owns shares in SATS Ltd and Straco Corporation Limited.