Ultimate Guide: Investing During a Recession

Investing during a recession:

COVID-19 has brought global economic activities to a near standstill, Singapore included. While effects of the pandemic have proven to be severe, with subsequent repercussions being difficult to predict, it is important to not disregard the opportunities that it can bring for some sectors. Investors should stay apprised of global news and continuously review their investment to protect their portfolio during these trying times.

How has COVID-19 affected the Singapore market?

Singapore is in a technical recession following a 41.2% GDP shrink in Q2 from its preceding quarter due to COVID-19. According to the Ministry of Trade and Industry (MTI), weak external demand amid a global economic slowdown, as well as circuit breaker measures from April 7 to June 1, have directly contributed to the drop in GDP, resulting in shuttered businesses and decimated retail spending.

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Singapore’s export-reliant manufacturing industry has taken a hit from the plunge in global trade. The construction and services sectors were also damaged by lockdown restrictions. Overall, the government has projected an annual contraction of between 4% and 7% for 2020.

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To nurse the economic injury, Singapore has announced four support budgets worth close to $100 billion, nearly 20% of its GDP. Unity, Resilience, Solidarity and the Fortitude Budget were rolled out to help firms address the three Cs in doing business- cash flow, cost and credit.

On top of that, the Monetary Authority of Singapore (MAS) is also providing monetary and financial stability to the country while ensuring safe management and operational resilience of the financial sector in this challenging period.

What is a technical recession?

A technical recession is defined as two consecutive quarters of quarter-on-quarter contraction. On a quarter-on-quarter basis, Singapore’s economy has shrunk 41.2% in the three months to June.

As such, the country is entering a technical recession for the first time since 2009, and is experiencing its worst-ever recession since independence in 1965.

The challenge ahead

Trade and Industry Minister Chan Chun Sing has highlighted a challenging road to recovery in the months ahead for the nation. The recovery is expected to be ‘slow and uneven’ as external demand continues to be weak, and countries battle the second and third waves of outbreaks by reinstating localised lockdowns or stricter safe distancing measures.

NTUC Assistant Secretary-General also expected “a sharp spike in retrenchments and unemployment figures”.

Thankfully, under the Emerging Stronger Taskforce, government and industry representatives from different sectors are working together on recommendations for economic recovery. Beyond recommendations, it has also launched Singapore Together Alliances for Action to prototype new ideas within three months to catalyse growth and to generate new jobs.

In addition, experts at the National Centre for Infectious Diseases (NCID) are also confident that Singapore will recover from the pandemic successfully, citing dedicated healthcare and public health professionals, many with experience from SARS, being on the frontlines as a reason. Volunteers and scientists are also readily offering skills and support to the community to combat the virus together.

Besides the strong medical landscape, Singapore’s unique size also makes the challenges posed by COVID-19 more manageable in scale as compared to other countries. With ample resources invested heavily during peacetime, all these assets collectively constitute to a strong urban health security in Singapore.

Overall, as a whole, Singapore has to be wary and on alert. As a small country dependent on cross-border goods and people flow, virus transmissions may increase following a loosening of travel restrictions. Overall, government policies, travel restrictions, social distancing, mask-wearing and more all have significant effects and they interact in complex and unpredictable ways.

Is there a good time to start investing?

At this juncture, it is important to note that all investments come with a set of risks, and that there is no single ‘best time’ for investing.

Investors may likely face an unfamiliar terrain and possibly experience bouts of market volatility as the virus brings a growing list of uncertainties that can transform the financial landscape. Having the financial holding power and appetite to ride through the turbulence can be helpful for investors weathering the storm.

At the end of the day, investors should take note to not rush into the market blindly, be cautious, and to do ample research. Investors may also consult their broker or adviser for advice.

Investments during a recession

J.P.Morgan believes that risk aversion among investors will likely prevail with increasing numbers of confirmed COVID-19 cases. As uncertainties from the outbreak are likely to persist, diversifying across asset classes and geographies could possibly aid investors in building a resilient portfolio and navigating the changing market conditions.

In a similar vein, financial analysts also highlighted the maintenance of a long-term outlook, and having careful capital management as potentially useful considerations. Some experts recommend investors to stay diversified.

One alternative investment class available is P2P Lending, which provides funds to carefully selected local SMEs, and at the same time, offers potential diversification to investors. Funding Societies, Southeast Asia’s largest P2P Lending platform, is one of the many such platforms available.

The company offers a variety of products and has an auto invest function that allows investors to customise and automate fund deployment based on investment preferences by toggling parameters such as investment products, interest rate ranges, investment amount ranges, and more.

Investors may find it helpful to note that subsequent economic recovery can potentially be uneven and differentiated. Some firms may be set to gain more clout, while others can take years to recapture pre-crisis profitability.

What opportunities can COVID-19 bring for the economy?

While COVID-19 has adversely affected many sectors, it has also provided new market opportunities in some areas such as medicine, telemedicine, domestic production, and cloud kitchen.

With technology aiding contactless and virtual interactions, some negativities faced by traditionally face-to-face sectors such as the property sector can be cushioned. Investors looking at tapping on market opportunities stemming from COVID-19 may find it helpful to stay up to date about these increases in demand.

a) Domestic production:

With border restrictions worldwide, the importance in having a stable flow of critical resources via domestic production is now more pronounced. Food supply, in particular, may see a need to ramp up its domestic production to reduce reliance on external imports.

In April 2020, a $30 million grant by speeding up local production of eggs, vegetables and fish in Singapore over the next six to 24 months. Singapore has set a 30 by 30 goal – to produce sufficient food locally to meet 30% of the nation’s nutritional needs by 2030. At the moment, only less than 10% of food is grown locally.

Another innovative mention would be Eco-Ark, a $4 million offshore high-tech fish farm that can yield up to 20 times more fish than other coastal farms. Contained within a platform measuring 48m by 28m just 5km off Changi Point ferry terminal, the farm employs a closed containment aquaculture system developed by the Aquaculture Centre of Excellence (ACE). This closed containment system makes it less vulnerable to environmental threats and also reduces the risk of water pollution for sustainability.

b) Medicine & Telemedicine:

Medicine, specifically COVID vaccine research, have been receiving global attention. Aligned with this, Temasek and other accredited investors have invested $250 million in a COVID vaccine testing company, Nasdaq-listed BioNTech.

In a similar field, telemedicine presents another opportunity. With Singaporeans staying at home to prevent virus transmissions, telemedicine provides convenience and a peace of mind for consumers who wish to consult a doctor without physically leaving their homes.

In fact, prior to the popularity of telemedicine in 2020 triggered by COVID-19, the Ministry of Health (MOH) had launched a regulatory sandbox in 2018. Known as the Licensing Experimentation and Adaptation Programme (LEAP), this initiative allows startups to work on telemedicine and mobile medicine (house call) services.

c) Cloud kitchen:

With citizens staying home, on-demand food delivery services have been on the rise. Cloud kitchens can help plug this demand gap and fulfil this increased need.

Several restaurants can team up and rent a cooking space together, known as a cloud kitchen, to serve a new location of customers without setting up a new restaurant. These cooking spaces are usually owned by food delivery companies.

Grab, for example, has launched its own GrabKitchen in January 2020. Spoonful Meals, the largest cloud and delivery-only kitchen operator in Hong Kong, has also launched its cloud kitchen in Singapore in October 2019.

d) Coping with change:

Technology has presented affected sectors with opportunities, cushioning the fall in revenue. For instance, property agents were unable to conduct many face to face viewings at showflats with prospective clients during the circuit breaker period in Singapore. New private home sales fell by 12% in the first quarter.

However, with low interest rates resulting in cheaper home loans, locals and foreigners are spurred to shop for properties in Singapore. Virtual tours have helped property agents navigate these tough times by providing an alternative avenue to look at houses.

Ultimately, new opportunities have emerged from the coronavirus. MAS noted that impact investing in healthcare companies and supply chain resilience and pandemic risk insurance could also be some of the future growth areas.

e) What can investors consider doing now?

Staying apprised of news happening in Singapore and around the world is helpful in making informed investment decisions. Investors can seek insight by reading and watching informative content on trusted platforms. Here are 10 fintech books to read, and three interesting TEDTalks on finance to get investors started.

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Disclaimer: The information above is meant purely for informational purposes and should not be relied upon as financial advice. Users may wish to approach a financial advisor before relying on any advice provided by the website to make any decision to buy, sell or hold any investment product.