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Market picks losers - and some winners from China virus outbreak
GLOBAL markets were spooked on Tuesday, with Asia taking the biggest hit amid mounting fears surrounding the coronavirus in China.
Companies driven by tourism and those with exposure to China are likely to be hurt by the outbreak. On the other hand, healthcare-focused stocks, along with some defensive stocks, that can withstand the downside will stand to benefit, said analysts who spoke to The Business Times.
The coronavirus first surfaced in the central Chinese city of Wuhan. As of Wednesday, China's official figures put the number of confirmed cases at 470, and deaths at 17. Cases have also been reported in the US, Thailand, South Korea, Japan and Taiwan.
Singapore stocks had slumped on Tuesday; the Straits Times Index (STI) was down 1 per cent, in line with most regional markets, but recovered on Wednesday after a gain of 0.2 per cent as fears subsided on the back of Chinese containment efforts.
But CGS-CIMB head of research Lim Siew Khee said in a report that the STI could face a 6 to 12 per cent downside risk from current levels if the global pandemic worsens and the death toll starts going up.
Among the bright spots are defensive stocks that will emerge unscathed, even if the situation worsens. These include telcos like Singtel and StarHub, and domestically-driven names such as Sheng Siong, Comfort Delgro and Singapore Press Holdings, the report said.
Paul Chew, head of research at Phillip Securities Research, told BT that increased healthcare spending will benefit several counters on the Singapore exchange; these include hospitals, pharmaceutical companies and healthcare glove makers.
Glove makers stand to benefit, given that healthcare gloves will go into big-scale use as more preventive measures are put in place, said Mr Chew. Riverstone Holdings, which draws around 70 per cent of its revenue from manufacturing healthcare gloves, is an example of a likely beneficiary.
Said CGS CMIB's Ms Lim: "Raffles Medical could be a medium-term beneficiary, in terms of it likely getting higher patient footfall redirected from public hospitals and more vaccinations."
Among Singapore Reits (real estate investment trusts), healthcare-focused Parkway Life Reit may outperform retail Reits if the coronavirus continues to spread across Asia, said CMC Markets analyst Margaret Yang. She cited CapitaLand Mall Trust and HK Land, which both have assets in Wuhan, as examples of companies that are more vulnerable to the disease headwinds.
The most vulnerable sectors are aviation, gaming, hospitality, consumer discretionary products and those with China exposure, said CGS-CIMB's Ms Lim. Singapore Airlines could be hit in terms of passenger traffic and financial performance, she said.
Companies with significant exposure to China include:
- CapitaLand, which secured 41 per cent of its Q3 2019 operating earnings before interests and taxes from China;
- Sasseur Reit, whose whole portfolio is in China, though it has no assets in Wuhan;
- Mapletree Logistics Trust, which has 24 properties in China out of its 144, making up 9 per cent of its assets under management.
But local companies with businesses in Wuhan say they have ramped up health and safety precautions, and that it is still business as usual for them.
EC World Reit, which has assets in Wuhan and elsewhere in China, said its tenants have not felt any visible impact on their businesses. However, it has implemented daily temperature checks for all personnel entering its premises.
Frasers Hospitality vice-president of global branding and communications Jastina Balen said: "While it is early stages to confirm this for certain, we have not observed any changes to the booking trends at our properties."
A doctor is on call 24/7 for staff and guests who need help or information, she added.
Local airline Scoot, which has daily flights to Wuhan, said flights are still running as scheduled.
Disinfectants, hand sanitisers and surgical masks have been made available on all of the carrier's China flights. An aircraft disinfection protocol is also in place for flights with passengers suspected of being ill with the bug.
Although many are concerned that the situation will worsen as intra-China travel picks up during the Chinese New Year period, market watchers are not yet hitting the panic button.
Joel Ng, head of research at KGI Securities, said: The spread of the Wuhan virus is clearly a major downside risk if it spreads further, but we believe the impact will be less than in the Sars epidemic in 2003, primarily because the mortality rate is much lower this time around.
"For now, it seems that it is more a trading play, as we notice that almost all healthcare-related plays are rising, whether or not they would benefit."
Credit Suisse also expects the Singapore market to be more resilient, as market ROE (return on equity) has improved structurally to 9.8 per cent from 6.6 per cent in 2003. Control measures have also advanced since Sars, the brokerage said in an equity research report.
A separate report by DBS says that yields and stock prices fell in the first few months and rebounded thereafter. Given this trend, DBS strategists said investors are likely to turn a blind eye to good data and rein in risk appetites for now.