Since the outbreak of Covid-19, which has spread widely, the prices of assets around the world, especially risky assets like stocks and oil, have significantly decreased. This decline is likely due to investors anticipating a halt in economic activities, both on the demand side, where activities such as domestic and international travel, events, and even dining out have come to a standstill, and on the supply side, where production in factories has slowed down due to temporary closures, and the transportation of raw materials and finished goods has been disrupted, causing delays or inability to deliver products.

      If we assess the impacts in various aspects, we can summarize as follows:

Short-term (1-2 months)

1. In the short term, businesses that will be immediately affected include those in the tourism sector such as airlines, hotels, tourist attractions, and restaurants. In Thailand, tourism revenue accounts for a significant portion, approximately 12% of GDP, leading to an immediate loss of income for companies in this sector.

2. The general public, including both permanent and temporary employees in affected businesses, may face layoffs or reduced income due to companies cutting costs or shutting down.

      If the situation can improve within a short period (which seems unlikely), the impact on the economy and the general public will be minimal. However, if the outbreak continues...

Medium to Long-term (in the case that the situation persists and the number of infections continues to rise globally), there is a possibility that the following scenarios may occur (emphasizing that these are just possibilities, not certainties, and may only happen partially):

  1. Affected businesses may start to lack liquidity due to lost income while still incurring operational costs, potentially leading to defaults.
  2. Other businesses, even if not directly related, may begin to feel the impact as confidence in the economy declines, causing companies to delay or cancel investments.
  3. Oil prices, which have seen a severe decline (partly due to producing countries deciding to increase production, but also due to decreased demand from a slowing economy), may lead to energy-related businesses facing bankruptcy or defaults.
  4. When defaults occur, the impact will extend to banks or other financial institutions that are creditors (both personal loans, mortgages, or corporate debts), leading to liquidity issues.
  5. In the bond market, defaults by some companies may make it harder for other companies to raise funds, such as issuing new bonds or rolling over existing debts, and may increase costs.
  6. In the stock market, companies that begin to lack liquidity will see their stock prices plummet. In cases of low liquidity, they may need to raise capital, shut down operations, or sell to other buyers. Investors who have used their stocks as collateral may face margin calls.
  7. Governments may implement measures to assist businesses facing liquidity issues (bailouts), which will increase fiscal burdens and public debt or necessitate tax increases, raising the risk of defaults.
  8. Central banks may inject liquidity into the system by purchasing bonds or significantly increasing the money supply, which may help liquidity in the short term but could affect the credibility of the country's financial system in the long run, leading to currency depreciation.

      All of this does not mean that every scenario will occur, but in a worst-case scenario, some of these may happen. Risks, especially in the bond market, have been accumulating for a long time due to low interest rates, leading investors to purchase riskier assets at higher prices (search for yield).

      This crisis is different from previous ones because the impact is widespread, affecting not only the general public who rely on daily income and cannot go out to earn, but also permanent employees who may face layoffs, small businesses that must temporarily cease operations, and large companies in sectors like energy or finance that are also affected. Additionally, this crisis is occurring simultaneously worldwide.

      If we compare it to previous crises, such as the 1997 Tom Yum Goong crisis, the impact then was limited to businesses that borrowed from abroad and financial institutions, confined to Thailand and Asia. The 2008 financial crisis primarily affected the United States and was limited to the real estate and financial sectors.

      If asked how we should adapt in such a situation, the answer will depend on each individual's circumstances.

General recommendations are as follows:

  1. Prepare emergency savings for unexpected expenses in case of job loss or business interruptions.
  2. Have assets that can preserve wealth in case of a currency crisis, with gold being a key asset to hold in your portfolio due to its long history of maintaining value.
  3. Gradually invest more in the stock market when prices drop to a level that is worthwhile for investment, as crises present opportunities to invest in undervalued stocks. However, avoid investing a large proportion at once, as mistimed purchases could lead to significant losses.
  4. Carefully analyze stocks before purchasing to ensure they can withstand the crisis, with characteristics such as:

    - Products or services that remain in demand even during economic crises.

    - Competitive advantages over rivals.

    - Sufficient liquidity (cash or equivalents) to weather the crisis.

    - Manageable debt levels that allow for interest payments.

    - An unsaturated market with growth opportunities.

Article by: Dr. Thanapoom Damraks