Thoughts on the Market Today (10 November 2020)

Markets Rally upon vaccine news. 

However, the rally is mostly sectorial based, with losses seen in some sectors.

Some would realise the gain on STI is larger than HSI. This is probably due to the sectorial mix. STI had more beneficiaries of the rally (mainly banks)

Key Beneficiaries of the Rally

Airlines and Aviation related (E.g SIA and SATS)

Banks (E.g OCBC, DBS , UOB)

Hotels (E.g City Development, Amara)

Tourism (E.g Straco, Genting Singapore)

Property (E.g City Development, Frasers Property)

Key Losers of the Rally

Glove Companies (E.g Top Glove, Riverstone)

Healthcare Related (E.g Medtecs, Vicplas Intl)

Tech Companies (E.g Tencent)

Tech Manufacturing (E.g AEM)

Property Management (E.g KWG Living, CC New Life)

E-Commerce (E.g Alibaba, JD)

Game Companies (E.g IGG)

 

Basically, apart from Property Management, the rest can be classified by Old Economy vs New Economy related. 

Its quite subjective for Property Management to be classified in either one since it does not rally today nor does it rally largely when new economy counters rally.

Although my view remains that today is probably a one-off and a reverse might occur based on information released in the following weeks or months.

In the near future should people be able to travel, it should reduce demand of the New Economy but not render it obsolete. The thought of vaccine news out yesterday affecting someone to not shop on 11:11 later or tomorrow does not really make much sense.

 

In such cases, I would stick back to looking at fundamentals.

The presence of vaccine should reduce the excess demand for gloves, but it will still be needed for administering of vaccines.

The presence of vaccine should release pent-up demand for travelling but does not mean that games and ecommerce would grind to a halt.

The trend of increased usage property management because of the convenience they brought in and the growth of property sector in China albeit slower should still stand. Rain or Shine,  a roof over the heads of people would still be required.

Tech Manufacturing should still continue as continued affluence should lead to increased use of tech products.

Similarly, just because one can fly in 2021(if possible), it does not mean that all hotels and airlines would return to profitability. One must consider the price wars that might happen between airlines. As well as the price wars between hotels. Next, another consideration will be the environment the hotels operate in. A company operating in a country with more people being vaccinated would most likely do better than a company operating in a country with little or no people being vaccinated yet.

If travelling returns but economy being a laggard does not recover due to lower numbers of travelling or unemployment being slow to pick up, interest rates are unlikely to see a raise anytime soon and hence it would likely mean lesser bottom-line for banks. Would this warrant an all time high for banks any time soon?  Fortunately, Banks are not anywhere near their all time high yet. But it is some food for thought

Would SIA look cheap even if it returns back to 2019 earnings at the current price? It probably would trade at a higher PE now then before its rights. But it just rallies as per the broad news.

Overall: Things may look very attractive as everyone starts pricing in a sooner than expected recovery. But whenever such things happen, it means that there is a higher chance of more volatility when the pricing in is wrong after more information is released.