Volatility and Losses Continue as Virus Spreads Quickly Outside of Asia, More Containment and Stimulus Policies Introduced

Published March 24, 2020

It was another volatile week with more losses. It was the worst week of trading for US markets since 2008 and March is on pace to be worst month since 1931. So far in March:

  • 12 out of 15 trading days had more than a 3% move;
  • 11 out of 15 trading days had more than a 4% move including 8 in a row which is a record;
  • There have been 9 down days and 6 up days and March is down a total of 23% so far;
  • While the market has been down 2 days in a row in March 2X, so far it is yet to gain 2 days in a row.

Daily Changes in March to the US Large Cap Index

What drove the volatility? Once again, it is the spread of COVID-19 which has accelerated vs. last week leading to less demand, higher unemployment and concerns that economies may be wiped out. Despite numerous stimulus policies and policies to curtail the spread of the virus as well as the promotion of possible vaccines and cures, fear continued to rule the day and losses mounted for investors. Last week, I indicated that:

  • The number of cases rose 42%, the number of deaths rose 55% and the number of people that recovered rose 23%.
  • This week, it was worse with the # of cases rising 99% and the # of deaths rising 110%. The number of people that have recovered also rose faster than last week at 28%, but that pales in comparison with the huge increases in cases and deaths.

Last week, we also saw Italy overtake China in # of deaths and the US overtake South Korea and France in # of cases. The death rate in Italy is now 9% followed by Iran at 8% and Spain at 5%. Sadly, 10 different countries in this chart saw at least a 100% increase in deaths last week. On the other hand, we also saw China have a day with no examples of community spread with all new cases due to foreigners coming into China with the disease and quarantined at the airport.

Changes in Coronavirus Cases, Deaths and Recoveries Over the Past Week

Source: Worldometers, compiled by DSCC.

There were multiple potential cures named last week including:

  • Hydroxychloroquine (Plaquenil) with azithromycin – used for malaria. Has had success in a trial in France where 70% of those tested were clear of the virus.
  • Faviporavir – developed by Fujifilm Toyama Chemical, had success involving 340 patients in Wuhan and Shenzhen with patients turning negative for the virus in an average of 4 days compared with 11 days for those who didn’t take it.
  • Redesivir, an AIDS drug, also had success in treating patients in China.
  • The NIH is working with Moderna to develop a vaccine using the genetic sequencing of COVID-19.

The World Health Organization (WHO) said there are 20 different coronavirus vaccines being worked on at the moment. It could still take 18 months to get the clinical trials and safety approvals needed to get a workable vaccine to market. However, the first human trials in the US started last week.

We have seen more and more countries follow China’s lead and try and lockdown their entire country or states/regions within a country. In the US, a number of states are now in shelter in place including Washington, California, Illinois, New York, New Jersey and more are being added by the hour. The Canadian and Mexican borders with the US are now closed and Americans were told not to travel anywhere internationally. If they did, they would likely be quarantined.

To try and counter the rise in the spread of COVID-19, the US government issued the following measures last week:

  • Reduced the federal funds rate to 0.0% - 0.25% while encouraging banks to keep lending. It also cut the discount rate to banks by 150 basis points to 0.25%.
  • The Fed will buy an additional $700B in securities ($500B in Treasuries and $200B in mortgage securities) on top of recent repurchase agreements. It has added the purchase of municipal bonds as well.
  • Delayed the tax filing due date for 2019 and Q1’20 by 3 months to July 15th.
  • Trump signed the coronavirus relief package into law which would provide free coronavirus testing and workers with up to 2 weeks of paid sick leave if they are being tested or treated for the coronavirus or have been diagnosed with it. They are capped at $511/day. Workers with family members affected by the virus could receive up to $200/day.
  • A stimulus package valued between $800B and $1.5 Trillion is still being debated in Washington which is expected to include some or all of the following measures:
    • $50B lending facility for airlines
  • $150B for other hard hit sectors;
  • $300B to provide loans to small businesses
  • $500B in direct payments to taxpayers in 2 rounds with $250B as soon as April 6thand another $250B from May 8th.

The EU announced that it would spend 750B Euros in bond purchases to calm down sovereign debt markets and will buy government and corporate bonds. Other countries have also enacted various stimulus policies.

Employment is the biggest concern. Last week, jobless claims rose from 211K to 281K and some economists expect jobless claims to reach 2M next week. Economic data being reported in the US for February was still good with:

  • Existing home sales rising 6.5% to the highest level since 2007 and housing starts falling 1.5 which was ahead consensus;
  • Industrial production rising 0.6%;
  • Retail sales declining 0.5%.

The US was significantly stronger last week rising:

  • 4% against the Japanese Yen to 111 and is now up 2% YTD;
  • 4% against the Dollar Index to 102.7 and 6% YTD. This is the highest value in over 3 years as the $US becomes a haven in risky times;
  • 3% against the Korean Won to 1253 and is up 9% YTD;
  • 1% against the Chinese Yuan to 7.1 and is up 2% YTD;
  • Flat against the Chinese Dollar to 30.3 which is up 1% YTD;

In terms of how the display industry is being impacted:

  • Conditions continue to improve in Wuhan and Hubei province. Now, Hubei residents can leave Wuhan after they get health approval, but can only travel by car. There is still no public transportation available in Wuhan such as train, bus or plane. As a result, fabs in Wuhan are picking up employees by company car.
  • The staff return rate at CSOT in Wuhan is now 80% with Tianma at 85%.
  • Samsung Display does not have any backplane material sourcing issues. However, they had some module component sourcing issues in Vietnam in their flexible module lines. OLED revenues are expected to be down 30% in Q1’20 vs. their plan. However, not all of this decline can be attributed to the virus as their plan was aggressive.
  • LGD’s LCD module lines in Nanjing had stopped for 12-13 days while other sites, Guangzhou and Yantai, had continued operations. So, there was some impact on Apple tablet and notebook display deliveries. LGD also reported a temporary shutdown in Gumi at one of its module lines as an employee tested positive for the virus.
  • LCD TV panel shipments are at acceptable levels for LGD and SDC due to internal demand in Q1. But slower demand in Q2 could lead to price reductions and weaken the results. Demand is particularly soft in Europe with European retailers talking about no set shipments for 3-4 weeks due to lockdowns.

In terms of end product demand/supply:

  • Digitimes reported that most Chinese manufacturers are operating around 80% utilization in March, much higher than 40% - 60% in February.
  • Sony announced that they will close two TV plants in Malaysia from March 18th to 31st per the government’s request due to the coronavirus outbreak.
  • Samsung announced that it would shut down its TV manufacturing plant in Slovakia for one week starting Monday, 3/23. However, TV plants in Hungary and Poland will remain operational.
  • Lenovo’s CEO noted that IDC lowered their PC forecast from 5% growth to a 1% decline in sales. Lenovo thinks that's about right. Until now Lenovo is seeing servers better than expected due to new cloud demand from remote working.
  • Digitimes reported a shortage of some TV models in the Taiwan market due to supply constraints, citing Samsung and LG models. Digitimes noted that demand for notebook PCs for enterprise customers has begun rising but did not cite any specific increases. Michael Dell said in an interview with CRN: “In notebooks…we’re seeing demand shortages because of the work from home strategy.” Digitimes quoted AUO CEO Paul Peng as saying that demand for IT products such as smartphones and tablets that can be used for remote and online education has begun rising.
  • Xiaomi announced that it would re-open 1800 of its stores in China, while Samsung announced that they would shut all stores in the US and Canada.

In other related COVID-19 news:

  • Amazon announced that it plans to hire 100,000 people across the US to meet demand for home delivery of online orders. Walmart announced they would hire 150,000 additional workers in its warehouses on strong demand from the virus and would also pay bonuses to its current workers. It is also starting drive-thru testing of COVID-19 starting last week in Chicago.
  • Apple announced that its Worldwide Developer Conference in June would be held as an online-only event.
  • The White House said Thursday that the Group of Seven Leaders’ Summit that the U.S. was set to host at Camp David in June will now be done by video-teleconference, because of the pandemic.
  • SID issued a statement indicating that currently, Display Week 2020 will take place as scheduled. SID will make updates at this link. It could possibly be postponed if the lockdown in SF remains in effect, we don’t expect it to be canceled.
  • The Olympic flame arrived in Japan this week in a small ceremony closed to the public. Organizing committee President Yoshiro Mori was quoted in the Wall St. Journal as saying that the Games would be a “safe and secure” event, but surveys indicate that two-thirds of Japanese people don’t believe the Games will go forward as planned. US Swimming became the first organization to request a delay due to challenges preparing for the events given the virus. They asked for a 1-year delay.

In terms of index performance for the past week:

  • Our equipment supplier index (ESSI) had the worst performance, down 20% and is now down 36% YTD. Many semiconductor equipment suppliers were downgraded last week on growing demand concerns;
  • Our panel supplier Index (PSSI) fell the least last week, down 9%, and is down 19% YTD.
  • The other indexes were down between 12% and 13% W/W and are down between 20% and 29% YTD;

Index Performance

In the case of panel suppliers, JDI gained after a sharp drop last week while others fell between 6% and 20%. On a relative basis, Chinese panel makers again fared better than their Korean and Taiwanese competitors, as the Chinese stocks saw only high-single digit % drops in the week, while the Korean and Taiwanese losses extended to double-digits %. Every panel maker is down YTD. Among individual panel stocks:

  • Japan Display was up 2.4% after losing 35% last week. JDI had no news this week, but next week they have scheduled an extraordinary meeting of shareholders to approve a share and debt sale that could eventually make Ichigo Trust a majority shareholder. JDI is now down 49% since the beginning of the year.
  • CEC Huadong had the “best” week among the Chinese panel makers with a decline of only 6.1%, and CEC Huadong is now down 18% for the year.
  • Visionox was down 7.0% for the week and is now down 29% year to date.
  • Tianma was down 7.1% for the week is now down 12% for the year.
  • BOE was down 7.6% for the week, but BOE remains the best-performing panel stock as it is “only” down 9% since the beginning of the year.
  • HannStar was down 13.5% for the week and is now down 38% for the year.
  • AUO dropped 13.8% for the week and is now down 34% since the beginning of the year.
  • Innolux was down 15.0% for the week and is now down 36% for the year.
  • LG Display was down 19.8% for the week and is now down 42% for the year.

Weekly Stock Price Performance by Display Supplier

YTD Stock Price Performance by Display Supplier

Looking at large-cap display equipment stocks, Nikon was up 7% as it is no longer being seen as a semiconductor stock. The other large cap equipment stocks were down between 1% and 25% with AMAT seeing a number of downgrades to its price target from $70+ to ~$50. On a YTD basis, there is Wuhan Jingce which is up 14% and everyone else which are down between 58% (SCREEN) and Han’s Laser (28%).

Large Cap Equipment Company W/W Results

Large Cap Equipment Company YTD Results

Looking at the small cap equipment companies last week, YAC, Toptec and V Tech all enjoyed W/W growth while the other firms experienced declines ranging from 5% (Invenia) to 29% (Philoptics) despite 2 new POs from Philoptics. On a YTD basis, the best performance is Toptec down 2% with other suppliers down between 54% (Invenia) and 26% (SNU Precision).

Small Cap Equipment Company W/W Results

Small Cap Equipment Company YTD Results

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Written by

Ross Young