MERS has spread to ASEAN and is impacting stocks
The first case of Middle East Respiratory Syndrome (MERS) in Thailand was reported last Thursday. While this is not the first case in ASEAN – there has been a previous case each in Malaysia (April 2014) and Philippines (Feb 2015) – this is the first case following the new outbreak of MERS in South Korea from 20 May 2015.
Airport, hotel, airline and hospital stocks in Thailand saw a sharp correction on Friday as a result. Our transportation analyst, Tushar Mohata, has looked into the impact specifically on the airport stocks in the region (AOT and MAHB). In this note, we take a broader look at the impact on markets. It is not yet clear how much further MERS will spread in ASEAN, and we believe this is something that will require close monitoring, but we agree with Tushar and our Korea strategist Michael Na’s assessment of the situation, and believe we will see a similar opportunity to buy on dips in ASEAN. For investors able to withstand some volatility, we believe a 10% correction on single stocks offers good entry points already (all else being equal).
Out of these, we believe MERS is likely to have a milder market impact than SARS and EBOLA (see “About MERS” section further ahead in this note), and that MERS in Korea may be the most useful as a case study. We can tentatively expect a broadly similar timeline and pattern as in Korea (assuming that the impact in Korea is indeed past its worst) – thus a roughly four-week timeframe from the first case to where the situation is under control.
Coming to the sectors, we believe the primary channel of stock market impact will be through tourism – tourist flows in both directions tend to decline as people choose to defer/cancel overseas trips, especially leisure trips – and therefore on airline and hotel stocks.
In ASEAN, these include AOT TB, THAI TB, AAV TB, NOK TB, MINT TB, CENTEL TB, OHTL TB, ERW TB in Thailand; PAL PM, CEB PM in the Philippines; MAHB MK, GENT MK, GENM MK, SHMB MK in Malaysia; GIAA IJ, PLIN IJ in Indonesia and SIA SP, TGR SP, MAND SP, HPL SP, GRAN SP in Singapore. (Read Report)
Source : Nomura Global Markets Research