Despite the near term macro impact, some companies are less affected than others such as grocery retailers, pharmaceutical companies and telecom operators. Both groceries and pharmacies are essential services which have been relatively less impacted by lockdowns while data usage for telecom companies will most likely see an increase as most people stay home. The fund holds the third biggest pharmaceutical company by market share in Bangladesh, the largest telecom company by market share in Sri Lanka and a conglomerate in Sri Lanka which operates the second biggest grocery retailer.
What monetary and fiscal measures have Asian frontier countries taken?
Over the past month there have been massive monetary and fiscal policy measures announced across countries. Both the U.S. and countries within the EU have announced huge fiscal support plans while the U.S. Fed cut benchmark interest rates by another 100 basis points to almost 0%. Global central banks followed this cue and all the fund’s major markets have announced interest rate easing as well as fiscal support measures as provided below.
These policy moves will help cushion some of the negative economic impact but it will also lead to more stretched fiscal balances. As a result, some countries in both frontier and emerging markets could request for funding from multilateral and bilateral creditors with the International Monetary Fund, World Bank and Asian Development Bank having committed financing lines to affected countries.
Some countries like Pakistan and Sri Lanka which both have large fiscal deficits don’t have better timing to execute much needed reforms once the COVID-19 led issues have passed as this event will be a sound reason to carry out reforms linked to privatisation, taxes, public sector enterprises and exports.
Major Asian frontier markets have taken emergency monetary and fiscal measures
||Key monetary measures
||Key fiscal measures
||75 basis points emergency cut in benchmark interest rates, 150 basis points cut in cash reserve ratio, relaxation in repayment terms of bank loans.
||USD 600 million subsidy package to pay wages to workers in the garment industry, USD 3.5 bln subsidized working capital loans to industrial and service sectors, USD 2.4 bln subsidized working captal loans to small & medium enterprises.
||150 basis points emergency cut in benchmark interests rates, relaxation in repayment terms of bank loans.
||Reduction in fuel prices, deferment in payment of utility bills, USD 600 million package for cash handouts to lower income families, USD 600 millon relief package for exporters, tax relief for the construction industry.
||50 basis points emergency cut in benchmark interest rates, statutory reserve requirement reduced by 100 basis points, reduction in capital adequacy ratio requirements for banks, six month debt moratorium for most impacted sectors, lower interest rate working capital loans.
||Banned import of all non essential goods, cash handout to lower income families and elderly, deferred payment of taxes and utility bills.
||100 basis points cut in benchmark interest rates, USD 12 bln credit package of lower interest rate loans to the most affected sectors, delay of interest payments on loans to affected sectors, banks to delay cash dividends.
||USD 7.7 bln package for delayed tax payments and land use fees, USD 2.6 bln package to support workers in impacted industries, faster execution of infrastructure projects.
(Source: IMS Securities, Topline Securities, CT CLSA Securities, SSI Securities, Tellimer)
What has not changed?
The big question to be asked is, what will be the impact from the COVID-19 crisis for global markets and more specifically Asian frontier markets? The spread of COVID-19 will surely impact near term growth but will it stop companies from relocating their operations from China? Will global retailers stop sourcing garments from Bangladesh? Will it alter the attractive demographics of our universe? Will the geopolitical importance of countries such as Myanmar, Pakistan and Sri Lanka get diluted? Will earnings growth be negative beyond 2020?
We strongly believe that one of the big lessons learned from the COVID-19 crisis is the overreliance by European and North American countries on products entirely sourced from China and India, like medical equipment and chemicals for pharmaceutical products. We expect that some of this production could go back to Europe and North America but also to other Asian frontier and emerging countries (like textiles and light manufacturing) in order to reduce the dependence on China and India which can be “life threatening” as experienced with the blocked supply of basic goods in Europe and North America.