I think I might already have been jabbed more times from Pfizer vaccines this year, compared to number of social outings I have got to experience as a Melbourne resident. Therefore should the vaccine work as well as the governments tell me, given my age, touch wood the Omicron variant won’t hurt me too much with a bit of luck.
Whilst I don’t sound too worried about it with those remarks, I am worried about many reactions from governments throughout the world to this development.
How then may this all affect “reopening stocks”, that are correlated to a potential rebound in tourism, and countries such as Vietnam where tourism makes up a significant percentage of GDP?
My worries about “reopening stocks” might sound a little odd given it was not that long ago I touched on some stocks at that might do well if tourism across Southeast Asia picked up.
BEST REOPENING STOCKS FOR 2022?
Here is a link where for example I discussed a couple of “reopening” stocks with operations in the likes of Thailand, Vietnam and Cambodia.
News across the world in relation to the pandemic in September seemed to improve the prospects of reopening stocks.
This was a welcoming trend after things were looking pretty bad in many places, including Vietnam in July and early August.
At that time though I was somewhat optimistic for an improvement in the news flow based on a few factors.
VIETNAM ECONOMIC OUTLOOK FOR 2022 DURING COVID-19
These were that vaccine supplies were coming in quickly to Vietnam, signs were their vaccination uptake would be high, and that the vaccine rollout would be fast. I discussed these factors here back in August.
OMICRON VARIANT AND TRAVEL IN SOUTHEAST ASIA
Now getting back to this new variant, should we be scared..?
Of government’s reactions to it that is..
This article that appeared about 2 weeks after the Omicron variant was first making big headlines, gives a bit of a broad overview on some of the policymakers’ reactions across SE Asia.
I suppose the good news is it could have been worse. I mean as a rule of thumb for the region at the time of writing, it seems only those who are travelling from certain counties across Africa have been denied the ability to enter due to this new variant popping up.
However as noted in the above news article, a range of changes were issued at short notice. They varied considerably across different countries, and no doubt were very disruptive in some instances for travellers during this time. For example, Singapore suddenly required more testing before and after arrival, Thailand quickly reversed a recent rule where vaccinated travellers did not have to quarantine making them do so for one night, Indonesia made quarantine time 10 days instead of 3.
The damage here done to a hopeful tourism recovery may be more to do with the uncertainty this has created for potential new short-term travellers, as opposed to any direct fear of new covid variants, or hassles for those travellers affected over the last few weeks.
SOUTHEAST ASIA REOPENING STOCKS (LINKED TO TOURISM) IMPLICATIONS
Well I wish to firstly clarify that although I specifically pointed to some stocks like Thai Beverage (SGX:Y92) and Nagacorp (HK:3918) a couple of months back as potential recovery plays, this is not a theme overall that I wish to make big bets across my portfolio.
What I was observing at the time and that somewhat surprised me is some of the Asian stock markets languishing well below pre covid levels and didn’t pick up too much when we saw some positive developments regarding the news on the pandemic. That is, not much positive reaction over September / October as case numbers came down, and vaccination rollouts gained momentum.
stocks that haven’t recovered from pandemic
Therefore for exposure to reopening style stocks for a portfolio, assuming you are going to have some exposure there, stocks like those 2 just mentioned (substantially lower than pre covid levels) might be relatively attractive compared with other global markets. Elsewhere I see some investors playing this theme via stocks that are not far away from their pre covid share price levels which seems a bit strange.
ARE THAI BEVERAGE (SGX:Y92) AND NAGACORP (HK:3918) STOCKS TO BUY FOR 2022?
When thinking of Thai Beverage (SGX:Y92) and Nagacorp (HK:3918) my expectations were not that the first 6 months of 2022 would be very good for travel. It was rather the prospects were improving such that at some stage towards the back end of 2022 there would be some “green shoots” for investors to look forward to. As the stock market is always forward looking, it was worth exploring this theme at least.
I don’t think analysts have great expectations on these stocks anyway. Given my proceeding comments about the green shoots occurring later in 2022 it is probably not until 2023 we might get a cleaner look at what the sustainable future earnings might be like. Nagacorp earnings estimates for then is still well below 2019 levels. Thai Beverage revenue estimates are not much more than 2019 and they are not so dependant on tourism to the extent that Nagacorp is. I am talking in nominal terms also and we have had plenty of inflation over this timeframe. Therefore I think the market is well aware that the travel market probably has been permanently impaired to some extent from uncertainty around government policies or just the fact the unvaccinated population are less likely to travel. Hopefully for shareholders, expectations are already low enough so that it doesn’t take much good news to do well from here, maybe just less bad news!
SOUTHEAST ASIA TRAVEL RESTRICTIONS IN 2022?
Whilst at the moment I cannot see tourists from where I am sitting right now (Australia) tempted at all to book short term holidays to the likes of Thailand, Cambodia and Vietnam things may evolve by the end of 2022.
Right now the government’s reactions across the world to this new covid variant gives no confidence to anyone to be able to book a relatively short holiday.
However the futility of covid zero policies must be dawning upon countries as we head into 2022. I have to laugh how some countries speak of living with covid and focusing on hospitalizations / deaths rather than case numbers, then for the media to going to panic mode about case numbers and Omicron. That has been the case in Australia over the last week as states still panic and put people in quarantine at the drop of a hat.
If things can settle down through 2022 so that the only travel hassle might be a test before departure and perhaps a rapid test on arrival that may not be such a big deal. I say this because I note Cambodia had basically got to this stage. In fact I might even find myself in Cambodia first thing in 2022 because of such reasons.
That doesn’t sound all that bad at the moment in the scheme of things in terms of extra steps to travel these days. Remembering generally speaking many things in life nowadays is more of a bureaucratic nightmare with various compliance and regulations etc.
Those countries that make things less of a hassle stand to have a major competitive advantage in capturing any rebound in tourism. Countries such as Thailand, Vietnam and Cambodia are fully aware of the significant contribution tourism has to GDP including the flow on effects.
WHEN WILL VIETNAM REOPEN TO TOURISTS?
We have seen signs of Cambodia and Thailand making bigger efforts lately to make it easier for tourists. Vietnam are lagging those two, which is easily attributable to them being slower to secure vaccine supplies.
I suspect we are not too far away from Vietnam to show more signs to not want to lag too far behind steps that the likes of Thailand and Cambodia take. We must remember though that although Vietnam’s rate of first vaccination is very high, they have a significant number waiting for enough time to elapse to get their second jab and then a bit more time to be considered more fully protected.
SHOULD I INVEST IN REOPENING STOCKS FOR 2022?
In summary due to the prospects of tourism rebound being tied into governments around the world making common sense decisions, I don’t want to make a big portfolio bet overall on reopening stocks! However certain pockets in global markets that I have just discussed might be the best way to get some exposure. I think at least the people in tourism sensitive emerging economies realize the need to live with covid for economic necessity and to get back to work.
Reopening stocks overall look like a bit of a crowded trade given governments are interfering so much, however at least playing it via a smaller bet in emerging markets is more of a contrarian bet that might make better sense.
DEVELOPED VS EMERGING MARKETS OUTLOOK FOR 2022 – new ray dalio book
Contrast that to some developed economies where I sense more complacency in terms of the people’s willingness to get back to work. I have began reading Ray Dalio’s new book Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail – Kindle edition by Dalio, Ray. Politics & Social Sciences Kindle eBooks @ Amazon.com. It makes me ponder more how playing the reopening stocks via developed markets might be flawed.
COMPLACENCY IN DEVELOPED MARKETS? RAY DALIO VIEW
I hear in such developed markets trends that hint of complacency; a subject Ray Dalio explores in the book. For example,
- the great resignation
- staff refusing low paying jobs because they have been cashed up recently from government payments
- demanding 100% work from home policies
- money printing policies
- some cities majority’s favouring the very aggressive government lockdown policies
- yet massive political extremism emerging between different views
- talk of new wealth taxes and growing wealth inequalities
- yet borrowing and speculation even from those that can’t afford it
Such trends sound eerily like what Dalio talks about as signs of complacency and foreshadowing great declines in a country’s prospects.
I figure if you have to make a small punt on reopening stocks it might be better to do so in emerging markets where these worrying trends are either not there, or if so then to a much less extent. I might add also a few virus-related reasons also. For example, likes of Vietnam, Cambodia and Thailand vaccination rates are soon to be very high, yet before the vaccine rollouts they might have achieved a lot of natural immunity from being exposed, then the weather in this region might also help over the next months compared to elsewhere in the world. Usual disclaimer of course is I did not quite pass my bachelor of epidemiology yet!
However just how severe the effects of this new variant are is still unknown so any sort of reopening trades are in the more higher risk / reward bucket.
DEVELOPED VS EMERGING MARKETS OUTLOOK FOR 2022 GMO FORECASTS JEREMY GRANTHAM
For what it is worth, and possibly not much note my upcoming warning, the view from GMO’s Jeremy Grantham might be consistent with some of my comments.
Still, I find it interesting to observe the massive gap between their 7-year forecasts for emerging market value stocks of plus 5% a year, compared with US stocks down 7% or so a year!
Warning – Using these forecasts over the last decade in the past would not have helped very much!
What do you think, will Grantham finally be proven correct?
Is Vietnam a good investment?
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