INVESTMENT is taking on a new face, where faith in many of the once high-dividend yielders, has been shattered.
And as investors are trying to catch their breath on the string of dividend cuts and suspensions, they are confronted with another potential shocker of US virus tariffs against China.
As fears mount of a deepening recession, President Donald Trump got the thumbs down from markets on his tariff talk to punish China for the way it declared the number of infections.
If this tariff threat materialises, we may say “goodbye” to a timeframe for recovery, which some were estimating in a year or two.
Any relaunch of a tariff fight, when the coronavirus is crushing the United States and world economies, has been described as “insane.”
This “dirty” tactic to divert dissatisfaction among Americans over the handling of the virus outbreak will roil economies and financial markets, which are already experiencing extreme volatility, said Socio Economic Research Centre executive director Lee Heng Guie.
Bursa Malaysia too will feel the reverberations of these volatile swings as the global economy sinks into a deep recession not seen since the Great Depression.
But the impact of the pandemic is riskier.
With the ongoing trade war, this virus tariff move is not surprising but Asia is moving forward in its own way to control the mass spreading of the virus, said Areca Capital CEO Danny Wong.
Unlike some developed economies, most regional governments here place priority on human lives rather than the economy, which is a crucial move to preserve confidence, employment and the broader economy.
While we are wary of a possible second wave of virus attack, Bursa has already priced in poor growth this year, given that developed markets are facing a serious downturn, said Wong, cautioning that sentiment is also fragile these days.
Against the urgency to revive economies, warnings have surfaced that this pandemic may take two years to run its course.
Second quarter data for the United States will likely be “worse than any data we’ve seen for the economy, ” said Federal Reserve chairman Jerome Powell last week.
Warning that there could be a lasting “medium term” fallout from the virus, he pointed to the next “heartbreaking” event which is this week’s monthly jobs report, possibly showing a US unemployment rate in the double digits.
Meanwhile, things that were unheard of, on the dividend front, are happening.
Shell, for the first time since World War II, cut its first quarter dividend by 65% to 16 US cents per share.
Schlumberger slashed its first quarter dividend by 75% to 12.5 US cents while Chevron cut its capital expenditure to maintain its dividend.
Among energy companies maintaining dividends are British Petroleum with first quarter dividend at 10.5 US cents and ExxonMobil at 87 US cents per share.
Dividend halts and suspensions send negative signals on the company’s financial situation but in such a severe crisis, many investors support this decision to preserve capital.
In fact, companies are under fire for paying “big, fat” dividends as that will leave less money to absorb losses, and in the case of banks, support lending.
As companies raise money by issuing debt or fresh equity, the question of paying dividends becomes even more questionable.
Among Australia’s four big banks which paid US$23.9bil in dividends last year, ANZ Bank made a historic move to suspend its half yearly dividend, which was 80 US cents per share in the same period last year.
National Australia Bank cut its interim dividend by almost two thirds to 30 US cents per share.
Under an “extreme adverse” scenario, JP Morgan, the largest US bank by assets, may consider suspending its dividends which had hit a quarterly payout of 90 US cents.
That could happen if US gross domestic product (GDP) declines by 35% and unemployment hits 14%; in the first quarter, US GDP fell at an annualised rate of 4.8% while the jobless rate rose 0.9% in March to 4.4%.
Massive job cuts pose a more serious problem.
British Airways may cut 12,000 jobs; together with Ryanair, Lufthansa, Scandinavian Airlines and Air France-KLM, as many as 32,000 jobs could be shed.
Boeing is eliminating 16,000 jobs while 37,000 employees at Delta Air Lines are on voluntary unpaid leave; 15,000 employees at United Airlines have their working hours shortened by 25%.
Hefty pay cuts are occurring across industries.
In India, Reliance Industries chief Mukesh Ambani will forego his entire compensation; in Malaysia, the top management at Sapura Energy has taken a 50% pay cut.
Despite the fiscal measures taken, casualties related to jobs and livelihoods are everywhere.
Columnist Yap Leng Kuen notes the damage caused, which is still counting. The views expressed are the writer’s own.
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