Ask Mark Mobius! is a new feature on markmobius.com, where we curate questions asked by readers and investors for Mark to answer. These will be published on a regular basis. If you like to ask Mark a question please send an email to firstname.lastname@example.org. While Mark might not be able to answer every single query we will try our best to get as many questions answered as possible.
MM: The impact is quite significant. As a result of the restrictions on travel and trade the implications will be felt around the globe including Asian economies. Data released last week by China’s National Bureau of Statistics for retail sales, industrial production and investment were far worse than expected. This gives us an indication of what to expect. Furthermore, while China seems to be getting slowly back on its feet the global spread of Covid-19 has shut down all of its major trading partners at just the wrong time.
Therefore, the real question is how long governments around the world will continue to restrict business operations. Each day of restrictions means business losses. And for those companies with weak balance sheets it will be disastrous unless there is a strong flow of lending and support from banks and governments.
The turning point will only come once people can trade and travel freely again. And at the moment no one can say when that will be.
MM: The risks are the degree to which governments around the world keep up restrictions to trade and travel and the duration of these measures. That will of course depend on the successful containment of the virus.
MM: No. As with other pandemics it will end. A tremendous amount of resources are currently being devoted to prevent the spread of the virus and at developing a vaccine. Countries around the world are cooperating and sharing scientific findings. And governments are implementing drastic measures to reduce the spread of the disease. So there is a good chance of stability returning to the US and Asia once this crisis is over. But we will have to navigate some rough waters before that happens.
MM: The consequences for the global banking sector could be severe since the decline in interest rates deprives them of their earnings from the spread between their cost of money and their loan income. In addition, their non-performing loans are bound to increase due to the current crisis and this will put extra pressure on them. However, if governments step in and support banks with cheap long-term money and relaxed regulations that would help.
MM: The economic crisis brought on by the coronavirus has impacted demand for oil and has thereby affected oil prices negatively. This was exacerbated by the increase in oil supply resulting from the dispute between Russia and Saudi Arabia.
MM: There are opportunities everywhere in the world. Every country with liquid stock markets offers opportunities. Look for companies with a strong balance sheet. They will be much more likely to weather the storm and capture market share from overly levered peers.
MM: No one has an answer to that question which is why it is important to focus on value. What companies can survive this crisis and prosper after it Is all over?
MM: Of course, there have been panicked overreactions and in many cases the large drop in share price is not a reflection of changes in the fundamentals of the respective companies. However, some of the declines are based on reasonable assumptions about the future given the current restrictions. If measures to contain the virus are taken even further and constraints on commerce intensify we can expect further declines.
MM: As fundamental investors we look for companies with strong balance sheets and sound business models which have the ability to withstand the current and future crises.