HF&G - MAY 2021 - ISSUE 16 - ENDEMIC VIRUS
Asia is battling a resurgence of Covid across the region. The policy of "Zero-Covid" is now doing a boomerang on the region. Travel to and/from Asia is going to remain complicated much longer.
Asia was long touted as the role model how to tackle Covid in the West. The strict controlling of borders, quarantining of arriving guests “jail-style” in hotel rooms for 14-21 days, mask mandates, track and trace etc. Covid numbers were non-existent to low for months on end across most Asian countries.
During this time the US and Europe looked like chaotic backwater regions as they decided to have lockdowns on/off but with many gaping holes (travel never stopped, quarantine not enforced, track/trace with pen and paper) so the virus raged on across the West. Interestingly, this resulted in large percentage of healthy people who contracted the virus and were absolutely fine, caused some spikes in mortality although excess death rates are much lower than panicked media reports would have you believe. This combined with vaccinations of the old/vulnerable since the beginning of 2021 has meant that the US, and now also Europe, are returning to some sense of normalcy. European and American citizens are willing to live with a level of risk from the virus that Asian governments by-an-large seem unable to explain to their population. The continues fear-mongering of new variants and mutations (6,600 according to the Straits Times) is non-stop across the press.
The latest talking point is how the “variants” are now somehow more risky for children. Most of these claims seem to be build on a complete lack of data as 15 months of Covid everywhere has shown that fortunately Covid-19 has a deadly impact on old and vulnerable people but not young and active children.
Asian leaders need to start bringing a different message: Covid is endemic, it is here to stay, if you are old watch out, if you are young live normal.
Singapore has done this with Dengue and continued to live with it. Yes, HF&G knows Dengue is not contagious but in 2020/2021 it has been more deadly than Covid-19 in the country. There are no requirements to walk around in a mosquito net or no fines levied for not putting mosquito spray on your children.
Importantly, Lawrence Wong, a young minister in Singapore finally seems to be calling this out in the last 48 hours. A welcome and very necessary development. HF&G feels that the phrase “may become endemic” should just be replaced with “will for sure become endemic”. Covid is here to stay forever. There is no way it will ever disappear so tirelessly scaring your population with “daily cases” is non-sensical and only serves to spread fear.
The realization that Covid-19 is an endemic disease will be a long one. Asian populations are looking for some sort of “safety” which no government can provide. This safety is also remarkable in light of all the other life aspects where risks seem to be taken without an afterthought. Anyone who has travelled across Indonesia, Vietnam, Philippines, Cambodia, Malaysia knows how bad road conditions and traffic rules adherence can be. The sight of 4-5 people (including children) crammed together on a small motorbike is common across ASEAN. The risk to these children from any sort of road accident are infinitely higher than the risk of Covid to them.
Below is the example of Thailand comparing road deaths vs Covid in 2020. So that is 42 people a day dying from traffic accidents vs 0.16 people a day from Covid. When was the last time that a “traffic” lockdown was imposed to flatten the Thai death curve?
The consequence trying to eradicate the virus means that travelling freely to Asia from the west or within Asia is going to be complicated for much longer than anyone expects. It is an unpopular opinion but the expat communities in Bangkok, Kuala Lumpur, Singapore, HK and China better tighten their seat-belt as even with vaccinations picking up traveling is going to remain a big challenge. The question is when will this become a breaking-point for so many expat family that a mass exodus ensues? Financial hubs like Singapore or HK must be acutely aware of this problem but walking back from their quasi “zero covid” policies is going to be very hard to explain to their population.
PORTFOLIO REVIEW
Investment wise this means all Asian airlines and hotel stocks without a large domestic market are likely facing a long-term struggle. One of our historical picks SATS is in tough spot as it needs Changi Airport and Singapore Airlines to be successful. Singapore as a financial hub has no domestic market so unlike Australia where domestic travel is a large market this is non-existent for SATS or Singapore Airlines.
Singapore has already stated that testing will remain a long-term pillar of their strategy. Imagine getting on a flight from Los Angeles and landing in Changi airport. Once landed you are tested and the PCR tests on arrival shows you are “positive” even when you are vaccinated for example. Which business or leisure traveler will be fine to be forcefully locked up in a hotel room for 7-14-21 days? HF&G predicts this will become the next stage of travel anxiety going forward.
Below we give an overview of our stock ideas: the overall conclusion remains that the below track record speaks for itself. HF&G has many very large winners and very few losers.
This month HF&G is not adding a new name but reiterating its preference for Rex International. With oil approaching 70 USD the company is now printing cash from its Yumna field in Oman and this will be evident to the market by August when the 1H21 figures will be released. The company is a strong M&A candidate as the founders are in their 70’s and will want to exit. Oil companies are currently out of favor due to various law suits targeting Big Oil and their climate change commitments. Market commentators now say oil companies are “not investable” much like Big Tobacco over the past twenty years. Funnily enough Big Tobacco has been a great compounder for their shareholders between 1998 and 2018 (source Maastricht University). HF&G expects the same type of performance from well run oil companies going forward.
So instead of chasing clean energy stocks (see FT warning from 24th of May 2021) add some oil companies to your portfolio. HF&G likes Rex as a cheap oil play but there are many other ways to play the oil & gas theme.
That’s it for this month! Happy stock hunting and see you on Twitter @GreedyHaut.