Black Friday struck twice this year. It is normally used to describe the start of the Christmas shopping season. Black Friday is the day after Thanksgiving, when shops offer steep discounts. In Singapore, people queue for hours outside shopping malls to get bargains.
This year, there was a second Black Friday on Nov 26. The fear of Omicron wiped out US$1.25 trillion ($1.7 trillion) from the US stock market value. The Dow fell 2.5 %. The Singapore Exchange (SGX) swooned.
This Black Friday, investors should heed the lessons from a Danish parable about a chick called Henny Penny. In the story, an acorn fell on Henny Penny’s head. The chick was hysterical because of the acorn. It said that the sky was falling. The dim-witted Henny Penny could be the inspiration for the Omicron selloff.
In the three trading days since Nov 26, fearmongering has dominated the market. The Omicron variant has been touted as a scariant. People fear that it would not only destroy South Africa but also the rest of the world.
The scaremongering has reached a crescendo. There are even calls for trade sanctions against South Africa — a throwback to the country’s apartheid past.
Tourism, transport and entertainment were among the biggest losers on Black Friday. Singapore Airlines (SIA) dropped 4%, as did Genting Singapore.
The Omicron variant may not reverse the recovery. Investors should position themselves for a buying opportunity.
There is strong cause for optimism. The world has acted promptly to ban travel from Southern Africa. Travel bans were imposed within hours of the detection of the strain. Cases are being found elsewhere. But, the rate of spread should be slowed.
Omicron is said to be highly infectious. However, South African health experts have stated that the Omicron symptoms are mild.
Unlike in March 2020 when Covid first ravaged the markets, vaccination is now widespread. There are now enough vaccines to inoculate five times the world’s population.
There are fears that the Omicron variant may elude the present vaccines. However, a Moderna shot that would target Omicron could be available in early 2022.
Friday’s sell-off on the Omicron news was devastating for the recovery sectors. These are the sectors that could gain from reopening. They include travel, tourism and entertainment. There is a bargain in this space.
Black Friday was an overreaction. Many investors cannot even remember the sell-off that followed the Delta variant in August. The sell-off in the summer was sharp and short. The markets rallied when the vaccines were said to resist the Delta variant.
Even in March 2020, the markets recovered once the gigantic stimulus in the US was unveiled. Tech stocks received a turbo boost from Covid.
There are three stocks that have outstanding exposure to the travel, tourism and entertainment recovery. They would be powered by the magic carpet of operating leverage. This means that their ratio of fixed costs to revenue is high. Any rise in revenue should translate to even higher increases in operating profits.
SIA, the national carrier, is poised for take-off. It raised US$12 billion during the darkest days of the pandemic. This means it is four times more liquid today than in March 2020. It also slashed costs by axing 4,300 jobs. The salaries of the senior management have been cut by a third.
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Covid has been an excuse for cutting costs that could not be defended anyway. The street expects its revenue to match FY2019 levels by FY2023. As the stampede for VTL (vaccinated travel lane) flights shows, this could come even sooner.
Genting Singapore, which operates Resorts World Sentosa, is another recovery gem. Singapore is expecting tourist arrivals to rise fivefold in 2022. Many of them will gamble and party. Genting Singapore has been resilient during Covid, with ebitda halving in FY2021 compared to FY2019. The market expects ebitda to recover to pre-Covid levels in FY2023.
Minor International, Thailand’s hotel giant, could be an ideal proxy for tourism. The land of smiles has opened its doors to 52 countries. Minor International lost 61% of its value in the depths of 2020. Its Peninsular Hotel, which faces Bangkok’s Chao Phraya River, is bracing for almost 100% occupancy.
Minor International’s ebitda is expected to triple y-o-y in FY2022. The best Black Friday bargain this year may not be in the shops — but in the stock market.
Nirgunan Tiruchelvam is head of consumer sector equity at Tellimer and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in these columns
Photo: Singapore Airlines previewing its new cabin in its fleet of Boeing 737 Max 8. The airline is deemed to have “outstanding exposure” to the recovery / Bloomberg