We are almost one and a half months since the COVID-19 outbreak. Since the outbreak, people scrambled to wipe out surgical masks and hand sanitizers off the shelves. When the DORSCON (Disease Outbreak Response System Condition) level was raised to ORANGE, this causes some form of panic. People flocked to grocery stores to stock up their daily necessities and shopping malls became almost vacant overnight. At this moment, I am not exactly sure how hard the impact of the COVID-19 situation to retail REITs as tenants will still need to pay their rental even though business is bad. Over the weekends, I read about news that land lords are cutting their rental by almost 50% to help tenants tide over the current situation. We will probably see some DPU reduction over the next few quarters.
Below is the STI Index chart since the outbreak of the COVID-19. As you can see, the STI fell below 3,150 in early Feb but started recovering since then.
Let us look at past virus outbreaks to see what is the impact of such outbreaks to the STI.
Below is the STI chart since MERS (Middle East Respiratory Syndrome) outbreak in September 2012. There is slight downtrend from April 2013 to Feb 2014 before the STI starts picking up again. Roughly a year before the situation stabilize?
Let us look at H1N1 (Influenza A virus subtype H1N1) outbreak from April 2009 to August 2010. The swine flu doesn’t seem to have any significant impact on the STI.
I believe everyone would have heard of SARS (Severe Acute Respiratory Syndrome) which occurred in February 2003 to July 2003. The STI shows slight decline from February 2003 to May 2003 before recovering. The decline period is roughly 3 months.
Conclusion
As you can see above, it is very hard to co-relate such virus outbreak situations to the STI. As such, we should avoid timing the market but instead focus on the fundamentals of the business that we are buying into.