Reopening stocks either near bottom or have just rode out Omicron correction: DBS

UNLESS the Omicron coronavirus variant turns out to be highly virulent and existing vaccines become ineffective towards the strain, Singapore's "reopening stocks" are either near bottom or have just ended their correction, DBS said on Wednesday (Dec 8).

The bank was referring to stocks relating to aviation or aerospace, such as SATS S58 , Singapore Airlines (SIA) C6L and SIA Engineering S59 ; hospitality real estate investment trusts (Reits) like Ascott Residence Trust (ART) HMN and Far East Hospitality Trust Q5T ; and counters linked to domestic reopening, such as ComfortDelGro C52 , Frasers Centrepoint Trust J69U , and Mapletree Commercial Trust N2IU .

Giving the evaluation in a report on its Insights Direct research platform, DBS pointed out that a worst-case scenario under Omicron is now "unlikely", citing current news observation.

On Tuesday (Dec 7), top US infectious disease expert Anthony Fauci said early indications suggest Omicron is not worse than prior strains and is possibly milder, although he cautioned that it would take weeks to judge its severity.

Nevertheless, DBS projected that Singapore's reopening will face a setback of 1 year if under the worst-case scenario - if Omicron is highly transmissible and highly virulent, and existing vaccines are ineffective at preventing serious illness across all age groups.

This effectively returns the reopening timeline to the time of September 2020, DBS noted.

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It also gave 3 other scenarios.

In the event that the variant features high virulence but existing vaccines are effective, reopening stocks will hold up at their lowest level since early March, or 6 months prior to the first Vaccinated Travel Lane (VTL) launch, and gradually recover from there, DBS said.

Its best-case scenario - if Omicron, despite being highly transmissible, is "similar to seasonal flu" and overtakes the Delta variant as the dominant strain - places the end of the pandemic in sight and sees the reopening timeline speeding up from here.

This is the best that can happen as the world population will achieve Omicron immunity without overwhelming healthcare facilities, it pointed out.

And in the event that the variant shows low virulence but existing vaccines are ineffective, the reopening stocks will recover from recent lows, DBS said.

DBS included a table in its report showing where the reopening stocks are currently, versus their post-VTL high and their lowest point 6 months before the first VTL launch.

SIA's share price, which stood at S$4.99 as of Tuesday (Dec 7), swung 13 per cent from its post-VTL high and 7.1 per cent from the 6-month low. ART's, priced at S$1 on Tuesday, swung 12 per cent from its post-VTL high and 5.4 per cent from the 6-month low. ComfortDelGro's shares swung 16 per cent from their post-VTL high and -9.3 per cent from the 6-month low to S$1.41 on Tuesday.