Wuhan Coronavirus - UOB Kay Hian 2020-01-23: Singapore Strategy – Accumulate On Dips

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Wuhan Coronavirus - Singapore Strategy – Accumulate On Dips

It appears that market volatility due to the Wuhan coronavirus will be a prevalent theme as news regarding the mortality rate and number of cases will continue to dominate headlines in Asia and globally.
Looking at the effect of SARS on the Singapore market in 2002-03, we believe things could get worse before they get better.

We recommend investors accumulate on dips, given the strong market performance in the 3-6 months post SARS.

The spread of the Wuhan coronavirus has increased in the past few weeks, affecting regional stock markets and stalling the FSSTI’s positive momentum of the past two weeks. Given that it is winter in the northern hemisphere, coupled with the material increase in air, road and rail travel in Asia and China during Lunar New Year (which starts on 25 Jan 20), we expect new cases of the Wuhan virus to significantly increase in the next few weeks. Already, we have seen cases being reported outside of China – in Japan, South Korea, Thailand and the continental US.
Corollary to the Severe Acute Respiratory Syndrome (SARS) epidemic. The new virus causing the illness in Wuhan is a coronavirus, ie the same family of viruses as the SARS virus which affected Asia in 2003 and which also originated in China. At present, medical reports indicate that the Wuhan coronavirus may be less deadly than SARS, but the former seems to be spreading and infecting people at a higher rate.
SARS’s market impact in 2002-03. The STI had already been on a downtrend prior to the first reported case of SARS on 16 Nov 02. Thereafter, the STI declined by over 14% over the next four months to a trough on 10 Mar 03, and then a second bottom on 25 Apr 03. Four weeks later on 31 May 03, the World Health Organisation announced that Singapore had been removed from its list of “Infected Areas”. It is notable that three and six months after the first trough, the STI rallied 22% and 37% respectively.

Market will be driven by sentiment in the run-up to results in the next few weeks, in our view. As a result, the sectors that are likely to underperform will be airlines, hospitality, gaming and retail as governments enact travel restrictions while consumers may voluntarily curb travel and out-of-home activities. That said, the SARS epidemic was an unprecedented event, so there is a reasonable possibility that the coronavirus is more effectively contained as governments are now better prepared to react vs 2002-03.
2020F EPS growth may be affected. During SARS, the STI experienced three consecutive quarters of negative y-o-y EPS growth from 4Q02 to 2Q03. Meanwhile, Singapore’s GDP growth declined 0.7% q-o-q in 4Q02 and 5.4% q-o-q in 2Q03. At this early stage, we have not made any assumption changes, however there appears to be downside risk to our 4.3% y-o-y EPS growth for 2020 should the coronavirus spread faster and further than expected.
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Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-01-23

SGX Stock Analyst Report BUY MAINTAIN BUY 1.010 SAME 1.010

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