COVID-19 cases are spiking with the Delta variant. Should we be worried?

TL;DR

• As Singapore tightens restrictions and daily cases in Malaysia and Indonesia reach record high, concerns are mounting that the Delta variant will derail the economic recovery.
• However, vaccinations appear to have broken the chain of transmission between infection and hospitalisation in developed economies, limiting the economic impact.
• Stocks with exposure to re-opening like airlines and hotels could still present a long-term opportunity as the global travel will recover at some point in time.
• In the meantime, structural shifts that emerged from Covid-19 like adoption of e-commerce will likely continue to gather pace.

What happened?

Just last week I was deep in anticipation about the further loosening of safe distancing measures in Singapore, allowing groups of up to five to be dining out. But what a difference a week makes! With the large clusters of COVID-19 cases that broke out with the KTV lounges and Jurong fish port, we are now back to Phase 2 (Heightened Alert). Like myself, it seems like most people are just staying home most of the time and watching the Olympics action.

The surge in Covid-19 cases at a time where more than half of the population is fully vaccinated highlights the rapid spread of the Delta variant. Outside of Singapore, our neighbours in Malaysia, Indonesia and Thailand are seeing daily new cases reach record levels, putting their healthcare systems to test.

What does this mean?

• Concerns about slower than expected recovery could drive market weakness. The spread of the delta variant could drive market weakness if there are concerns that it would derail the ongoing economic recovery. So far, most major economies have continued on their re-opening plans even with rising Covid-19 infections, and the blanket lockdowns we saw last year are unlikely to return. In the UK, ‘Freedom Day’ to mark the end of most restrictions went ahead on 19 July even as daily new cases has soared to close to 50,000 from below 10,000 just a few weeks ago.
• Hospitalisation rates can be tracked as pandemic shifts to endemic. Governments are more confident about re-opening even with rising virus cases because vaccinations appear to have broken the chain between infections and serious illness in the developed world. In the UK, where more than 50% of the population has been fully vaccinated, the death-to-cases ratio has fallen to about one in 750 from one in 50 before the vaccine rollout. This meant that while the daily new cases of above 40,000 could have led to about 800 deaths a day in the past, the current daily toll is about 50.

What would Beansprout do?

• Vaccinations still key. For now, vaccinations still appear key in deciding the pace of re-opening between economies, with developed economies like the US, UK and Singapore in a better position. On the other hand, economies like Indonesia with a slower rate of vaccination might struggle to bring the spread of Covid-19 until control and re-open the economy.
• Re-opening plays could still present opportunities in the long term. What the US and UK have shown the rest of us is that there is still light at the tunnel, so long as vaccinations reach sufficiently high levels. This mean that stocks with exposure to re-opening like airlines and hotels could still present a long-term opportunity as the global travel will recover at some point in time.
• Structural shifts could benefit selected companies. In the meantime, structural shifts that emerged from Covid-19 will likely continue to gather pace. In the past year we have seen an increase in adoption of e-commerce, the validation of MRNA technology. These trends are likely to stay with or without the delta variant.

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