There is apparently no end to the impact of Covid 19 on economies of the Commonwealth of Nations.
Singapore, being a centre of financial services and as economic powerhouse, has gigantic influence over the nations in the region and the economic health of the city state has a domino effect across the block. Recent surge in corona virus and community infections, once again, in Singapore have resulted in the decline of share prices as government was compelled to impose social restrictions.
Surge in community infection
To curb the rising number of community infections, dining-in will once again be banned and a new limit of two people for all social gatherings will come into effect from Sunday for four weeks. Among other measures, the COVID-19 multi-ministry task force also said a return to working from home as the default.
The benchmark Straits Times Index (STI) down more than 3 per cent after the announcement just after 1pm, before clawing back some losses to close down 2.2 per cent or 68.24 points at 3,055.02. This decline marked the STI’s lowest level since Mar 8.
For the day, losers exceeded the gainers by 467 to 127 with 3.52 billion units worth S$3.22 billion changing hands.
“The market is not prepared for this drastic tightening of COVID-19 measures, which is happening so quickly after the earlier reduction,” said DailyFX’s strategist Margaret Yang, referring to how the group limit for social gatherings was cut from eight to five people slightly more than a week ago.
“It reflects that the situation may be worse than we anticipated,” she added. “On the economic level, there will also definitely be some adverse impact on the services and travel sectors.”
Hard-hit Aviation Sector
Aviation counters were among those hard hit. National carrier Singapore Airlines (SIA) decline 5.7 per cent to an 11-week low of S$4.50, although flight caterer SATS dropped 3.9 per cent to S$3.69.
Besides the heightened restrictions, the air travel bubble between Singapore and Hong Kong that was due to start on May 26 may be further delay. Transport Minister Ong Ye Kung said it is “very likely” that Singapore will not be able to meet the criteria for the travel bubble to go ahead.
“Investors had been hoping for the roll-out of the vaccine to spur an economic recovery and a broader border reopening, but we are now moving backwards and it might take longer than we thought for the aviation industry to recovery,” said Ms Yang.
Integrated resort operator Genting Singapore declined 3.1 per cent to S$0.79.
Banking heavyweights were also in the red – OCBC and UOB lost more than 2 per cent each, albeit DBS dropped 0.7 per cent.
On the other hand, shares of supermarket chain Sheng Siong surged nearly 11 per cent to S$1.66.
Interpreting this as a knee jerk reaction to the ban on dine-ins, Ms Yang said: “If you look around, there are not a lot of safe-haven stcks left. Most of the sectors are badly hurt and supermarkets are the only ones benefiting from this return to stricter measures.”
Among other heavily-traded stocks, Singtel down 3.7 per cent to S$2.32 following warning that it expects to record net exceptional losses of S$1.21 billion in its full-year results, mainly due to the impairment of assets and goodwill at two businesses.
The number of community cases will likely influence how the stock market would react over the next two weeks, said CMC Markets analyst Kelvin Wong.
“If the number of unlinked community cases continues to be on the rise in the next two weeks, it implies that more stringent measures are likely to be implemented such as a ‘circuit breaker 2.0’,” .
“Thus, stocks that are geared towards hospitality and travel, such as Genting, SIA, CapitaLand Integrated Commercial Trust may see further declines.”
Mr Yeap also expects stocks related to the retail, hospitality and entertainment sectors would come under further pressure against the increasing uncertainties due to the COVID-19 situation.
Investors may determine on a “risk-off approach” in the near term, he said, considering that the STI has had a strong run since the start of the year and “may be due for some profit-taking” given the current uncertainties.
However, overall negative impact on the stocks may be limited due to the prompt action taken to contain and control the spread of the virus and that more than 20 per cent of Singapore’s population has been fully vaccinated.
Although one may argue that the Singapore’s economy may not have a direct impact on the nations of the Commonwealth. One could not rule out the fact that Singapore’s recovery would also help speedy recovery of the nations battered by the global pandemic in the bloc.
Needless to say that the sudden surge in virus and community infections in India, Singapore and other nations in the Commonwealth may delay the recovery and also drastically slow down the growth forecasts.