SARS-Sudden Asian Recession Syndrome?

Rosan, one of the senior managers helping me out at the corporate communications center of the Lopez Group, was in near panic late last week. She scoured drugstores all over Metro Manila in search of surgical masks and could not find any. According to her, bottles of disinfecting alco-gels have also disappeared from the supermarket shelves.

One of Rosan’s top qualities as an executive is her tenacity and resourcefulness. Soon enough she found a source for the masks but would only sell in bulk. She ordered three boxes, convinced other executives to order as well and by the end of the day, had an order for six boxes. But when she sent out the messenger the following day to pick up her masks, the seller said they have no more stock.

Rosan had been bombarding me with e-mail forwards of articles on SARS and even an internal memo from the Asian Development Bank banning official travel to SARS affected areas. I guess Rosan’s concern stems from her scheduled visit to Singapore in a few weeks for medical consultation on a medical matter unrelated to SARS. I told her, not totally in jest, that I would follow the ADB restrictions on staff members returning from trips to SARS affected countries. That means a mandatory quarantine of up to 10 days upon her return to Manila.

Rosan countered that it would be unfair of me to do that unless there is a similar restriction on visits to our Ortigas office by our Singapore-based financial consultants from CSFB. She knew that would be difficult to do since we are in the midst of a difficult restructuring effort where face to face communications with creditors in the presence of our financial consultants are necessary.

But Rosan has a point. One afternoon last week, when our Singapore based consultants arrived, everyone waiting for an elevator at the lobby waited for them to board one of two elevators. That done, everyone else went to the other. No one wants to be rude. Everyone just couldn’t help being paranoid.

It is terrible. SARS is affecting the way we do business. No wonder one analyst commented that the SARS epidemic might turn out to be the worst economic crisis to hit East and Southeast Asia since the 1997 Bangkok financial flu epidemic.

According to CNN, Morgan Stanley’s Hong Kong-based chief economist Andy Xie says SARS is knocking the wind out of tourism and consumption, the only factors keeping East Asian economies out of recession in this time of war and sluggish American economy. According to Xie, if the epidemic lasts another two months, a number of Asian economies will slip into recession. Hong Kong is most at risk, with Singapore and Taiwan "not too far behind".

SARS is affecting how this region conducts business. An article in The New York Times datelined Hong Kong reports that UBS, the Swiss bank, is ordering employees returning to its European offices from trips to Asia to stay home for 10 days before reporting to work. Intel is canceling two major conferences in Asia for suppliers, customers and computer programmers.

KLM Royal Dutch Airlines has warned that SARS is hurting international air travel more than the war in Iraq. Asian airlines such as Hong Kong’s Cathay Pacific, which have been spared the financial convulsions affecting airlines in America and Europe, are now seeing passenger numbers dry up. Big carriers such as Qantas, Japan Airlines, Singapore Airlines, Thai and Korean Air have cut services and suspended some flights as they try to cope with the business downturn.

Indeed, tourism is the sector that is taking a real beating from SARS. Travel advisories on non essential travel to Asia have dramatically reduced tourism volume with massive cancellations of previously booked trips. Other than airlines, hotels, restaurants and other tourism-oriented businesses like the entertainment sector, face bleak times. The NYT report notes that the Rolling Stones, Moby and Carlos Santana have canceled or postponed scheduled concerts in Asia.

Most important for businesses, SARS is forcing them to develop new approaches to workplace health. NYT reports that J. P. Morgan Chase has split some important departments into two shifts that take turns working a week in the office and then a week at home, in the hope that if one shift becomes contaminated with the virus, the other shift can take over.

HSBC in Hong Kong sent 50 fixed-income bond traders home with instructions that all those who stay healthy for seven days – the disease’s usual incubation period – should then report to a backup site at the other end of the harbor from the bank’s headquarters.

On the macro economic level, it seems that hopes for economic recovery for Asian economies in the second half of this year just got sneezed away by SARS, giving the acronym a new meaning – Sudden Asian Recession Syndrome.

China, once immune to the economic woes of neighboring Asian economies will likely be the principal victim of SARS-induced economic slowdown. Its tourism sector will be most affected by the disease said to have originated in Southern China. Even its manufacturing sector could be affected as technical supervisors from Taiwan and elsewhere may be unable to travel to China causing a slowdown if not a halt to production lines.

Then again, there could be some winners, albeit temporary, in the ensuing paranoia. The makers and sellers of masks and alco-gel, for instance, should do quite well, like the manufacturers of duct tape in the US when fear of chemical/biological warfare swept through the country.

Owners of property in Makati or Ortigas that are available for short term rental should be able to get some relief from the current property slump from refugees from various regional corporate headquarters based in Hong Kong. We are the closest SARS-free area to them. I understand that a number have actually moved operations to Manila in the meantime and that means office and residential space would be immediately required.

And don’t forget the telecom companies. Because of SARS, business executives are resorting to more conference calls and teleconferencing. That should be good for the short-term bottom line of telecom companies. And if they get used to doing that instead of traveling, the airline industry could be in more danger than it realizes even now.

I guess the war in Iraq, terrorism in our midst and now SARS should make people more philosophical about life, cut consumption or turn paranoid. And yes, not to worry about my coughing. It is caused by my blood pressure medicine, not some virus.

Then again, you can‚t be too careful. I should remember to stop shaking hands. That proved more difficult than I thought after attending the Michel Camdessus JBFernandez lecture at AIM. I must also encourage Rosan to go find that elusive mask. If there is someone who can find one in the midst of this panic buying, believe me, it’s going to be Rosan.

Typo

The following didn’t happen in this newspaper, the reputation of our proofreaders notwithstanding. This came from Dr. Ernie E.

A newspaper printed a retraction/apology this way:

"We are sorry a horrid misprint appeared in yesterday’s news. What we said was that Mr. xxxxxx was a defective on the police force. That is not at all what the article should have said. I should have said that Mr. xxxxxx is a detective on the police farce.

Boo Chanco’s e-mail address is [email protected]