No winter lasts forever and fortune favours the brave. Could the Wuhan virus be the proverbial Black Swan event that investors can exploit? It is still early days of the outbreak of Wuhan virus but wealth builders must prime themselves to strike when the iron is hot.
Amid the global outbreak of the Wuhan virus, there have been media reports of numerous retailers looking to profit from the coronavirus by increasing prices of facial masks. It is not for me to make moral judgements on whether the actions of these retailers are ethical. After all, many of them are businessmen and not charity bodies. But as an investor, I ask myself how I can make money from this Wuhan virus in a responsible, safe and ethical manner.
Health crisis like this Wuhan virus can present opportunities but such crisis only occurs once in a blue moon. Prior to the Wuhan virus, the last flu epidemic that sparked off such global panic was the SARS in 2003. In view of this, wealth builders must be able to spot and seize opportunities when they surfaced. Many investors like to lament that there is a dearth of opportunities in our generation but when opportunities present themselves, investors often don’t dare to take the leap of faith.
A quick and dirty way of making money out of this Wuhan virus is obviously to stock up healthcare supplies (masks and gloves) and then sell them for a handsome profit through online platforms. But generally speaking, I don’t advocate readers to do so as it is rather socially irresponsible in my own opinion.
On the other hand, there are healthcare service providers looking to ramp up their screening services for Wuhan virus by offering lucrative monetary rewards for part-timers. For those who have been jobless for a long time, this is a good opportunity to earn some good money. But of course, there is a need to weigh the risks and benefits. Ultimately, one has to ask themselves whether is it worthwhile to take on such a risk.
In this article, I will share my insights on how wealth builders can seize opportunities in light of this scary Wuhan virus outbreak
SGX shares to buy
The most obvious strategy for investors is to buy into healthcare supplier stocks. Demand for their products is likely to soar for the next six months as the battle against Wuhan virus intensifies. It is still early days but share price of many healthcare suppliers listed in SGX, such as Top Glove, Medtecs International and Riverstone Holdings have already soared. Many of them are penny stocks that were previously thinly traded but Wuhan virus had given these counters plenty of turbocharged power.
Being listed in SGX, these manufacturers should be in the healthcare business for the long haul. Thus, I honestly doubt that they will take advantage of the situation and hike up prices to the retailers, who may pass on the costs to consumers. Also, the adverse publicity will also hurt their corporate image.
Another strategy is adopting a value-buy strategy and buy into stocks which has been temporarily affected by the Wuhan virus. Notable examples are Genting Singapore and Wilmar. For Genting Singapore, this Wuhan virus came at a bad timing as the integrated resort operator traditionally relies heavily on Chinese premium gamers for its casino operations. However, the catalyst for Genting Singapore is the potential winning of its bid for a Japan integrated resort. Wilmar is another counter with exposure to China and the Wuhan virus will also weigh on the financial results. But Wilmar has a pretty diversified revenue sources and its potential catalyst is the IPO of its China unit, which is likely to be postponed in view of Wuhan virus.
SGX shares to short-sell or lend
Most investors like to buy their way up. But you may also sell your way down if you are confident that certain counters will drop because of the Wuhan virus. Take for example, investors may choose to short-sell SIA shares given that the Wuhan virus will likely to impact air travel in the short term.
While many people view short-selling negatively, my opinion is that such activity is needed to restore market equilibrium. Sometimes, you need short sellers to punish errant management or companies that fail to perform. But of course, in life, there must be balance. Excessive short selling activities are not good for the stock market either.
Unless you are a seasoned investor, I do not advocate investors to short sell. This is because the process is quite complicated and you may get burned if you are not sure of the process. Generally speaking, you need to borrow the stocks from SGX before you can short sell. When a seller does not have sufficient shares in the account for settlement by 1:30pm on T+2, CDP will conduct buy-in on that afternoon. There are financial bloggers who accidentally performed “naked short selling” and ended up being fined by SGX and recording losses because of the unfavourable buy-in prices by CDP.
Apart from the above risk, there are borrowing fees that short sellers must be aware of. In a bid to make it more attractive for institutional investors to borrow, SGX has reduced the borrowing fees with effect from 2 December 2019. From 2 December 2019, the borrowing rates for index stocks, REITs and business trusts will be at 0.5% and the rest of securities at 4% per annum.
If you are a busy personnel who do not have the time and patience to do short-selling, then an alternative to enhance your stock yield could be to lend your stocks to SGX through the SGX Securities Borrowing and Lending Programme. The main con of loaning out your stocks is that you will not be able to attend the AGMs because the legal ownership temporarily does not reside with you until the shares are returned to you. However, you will still retain the economic benefits of ownership, such as bonuses, rights issues and dividends of your loaned stocks.
Apart from the Japanese yen, gold is the de-facto safe haven. The onset of Wuhan virus had obviously rattled global markets and left the world gripping in fear. Against such gloomy backdrop, gold price returned to form again in recent days., hitting a high of USD1,580 per ounce.
In Singapore, the gold market ecosystem grew substantially with the removal of GST on investment grade precious metals in 2012. Being a country with low crime rate and strong jurisdiction system, Singapore is viewed by many international wealth builders to be the best place to buy and store gold bullion.
In all honesty, I doubt gold price will hit the record high of USD1,900 seen in 2011. But the uncertainties in the macro-market, coupled with supply and demand dynamics, should see gold price continuing its climb. Previously, I predicted that gold price should see an moderate increase of 5 – 7% in 2020. But with Wuhan virus, gold price should see an increase of at least 10% in the coming months.
When it comes to owning gold, one must have the right mindset. The purposes of buying gold should be primarily for portfolio diversification. Thus, one should hold allocate about 10% to 20% of his wealth in gold. The prospects of gold in the long-term is still fundamentally sound because gold remains a significant part of many central banks’ reserves.
The Wuhan virus really drives home the point that health is wealth. You can lose big money to the stock market but you still live to fight another day if you are healthy. The Wuhan virus will be like a passing dark cloud that serves to remind everyone the important things in life and teaches us to cherish what we have. Without such a crisis, we will often take things for granted.
For sure, the world will rebound from this Wuhan virus in no time. So if you are unemployed because of the poor economy or lost money in your investments due to the Wuhan virus, stay positive and maintain healthy. Ultimately, with a good health, you will find the pot of gold at the end of the rainbow. Till then, enjoy the ride.
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