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Netflix Shares fall | Singapore’s economy is in ‘dire’ conditions

Welcome to the first edition of News’ Flash. This will be an ongoing series, however it will not have a consistent schedule. Rather, I prefer to take the more noteworthy news that occurs over the recent days. This will basically give you a quick headline summary of the 3 top news and my quick thoughts on them.

One of the greatest growth stocks of this year, Netflix, suffered more than a 10% drop in share price after they announced they missed analyst expectations for earnings per share (EPS).

My thoughts:

Most people who read the article would be wondering why Netflix suffered such a significant drop in its share price when they actually surpassed revenue targets and subscriber sign-ups. The main issue is that Netflix faced a sharp decline in income, announced a bleaker outlook AND had a slight change in its management.

Investors hate unpredictability. Despite the coronavirus still being at all time highs in the US, people have become less wary of it. They are starting to go out more often. Anything that does not catch the user’s attention to Netflix is competition to Netflix. Netflix has identified almost anything as its competition, from direct competitors such as Amazon Video and Disney+ to even sleep. With the recent rise in TikTok, Netflix was competing with another massive social media company during this period. (However, I think the competition will die down after the hype of TikTok dies down. Until TikTok finds a way to be sustainable, I do not see it as a viable competitor long term.)

Lastly, Netflix has and always will be trading at future valuations. That is a “trait” of a tech firm. They do not have much “assets” to be valued. The most obvious example would be Tesla ($TSLA). With the bleak outlook and the uncertainty in management, there is bound to be some pull back in share price.

Singapore’s economic situation is ‘dire’ as global coronavirus resurgence looms, says Monetary Authority of Singapore (MAS)

My thoughts:

Recently, Singapore announced that we would be entering a technical recession (a recession whereby the country faces two consecutive quarters of negative GDP growth). Singapore, being a trade dependent country, will definitely have an uneven recovery in the near future, because the impact of the pandemic on other countries will affect us as well.

The government has made several measures to ensure that businesses stay afloat. One of which is a fiscal stimulus of close to $100 billion SGD, which is about 20% of our GDP and required us to tap into our reserves. Another is to ensure that our exchange rate, our main tool of monetary policy, maintains a zero-appreciation policy. Such a stance would mean multiple things but it would mainly impact trade. Our exports would be cheaper in terms of foreign currency and thus export revenue can increase. Since trade covers 200% of our GDP, this can boost our GDP growth.

Another policy MAS has been taking would be to review banks’ capital plans and dividend payouts. Such intervention is very rare and is truly a sign of our unprecedented times. This will ensure that our financial sector, the bulk of our economy, remains prudent and is able to lend out money responsibly.

In addition, as our relief measures begin to ease, MAS has been talking to banks to ensure that businesses are eased into the circumstances without government assistance. This will ensure that businesses do not face sudden effects of the withdrawal of the grants the government has been providing.

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