The biggest impact of COVID-19 on finance, I believe, can be reduced to two words: Cash flow. Even though most businesses have already reopened, it will take a long time for their sales volumes to get back to their pre-pandemic levels. In the meantime, the demands of businesses for cash for working capital, loan servicing, and investments will far outstrip the cash they can raise from their own operations, bank loans, commercial papers or even corporate bond issuances. Banks will surely become more circumspect in their lending practices while investors would definitely be more risk averse in investing in corporate bonds and commercial papers. So it behoves the finance professional to focus on and sharpen his cash management skills if his company is to survive this economic crisis
“ The biggest impact of COVID-19 on finance, I believe, can be reduced to two words: Cash flow. ”
Even though most businesses have already reopened, it will take a long time for their sales volumes to get back to their pre-pandemic levels. In the meantime, the demands of businesses for cash for working capital, loan servicing and investments will far outstrip the cash they can raise from their own operations, bank loans, commercial papers or even corporate bond issuances. Banks will surely become more circumspect in their lending practices while investors would definitely be more risk-averse in investing in corporate bonds and commercial papers. So it behoves the finance professional to focus on and sharpen his cash management skills if his company is to survive this economic crisis.
Aside from the overwhelming loss of life, especially among the vulnerable segments of the population, the impact of COVID-19 on the global economy has been especially brutal. The Asian and Hong Kong flu pandemics caused short economic downturns with the global economy recovering rather quickly. Responses to these pandemics consisted primarily of simple hygiene and protective measures like washing of hands and wearing of masks. This time, because of the severity and rapid spread of the disease, stricter control measures were implemented across the globe. Practically, all businesses shut down their operations causing millions of people to lose their jobs and their means of living. An unprecedented lockdown was imposed on people, resulting in a near total shutdown of economic and social activities.
When the Inter-Agency Task Force for the Management of Emerging Infectious Diseases (IATF-EID) instituted an enhanced community quarantine regime for Metro Manila, the Philippine Stock Exchange (PSE) was allowed to continue its trading operations provided we close our trading floor and operate with a skeleton workforce. We were able to meet these challenges on very short notice because we had a tried-and-tested robust business continuity plan. We also had to shorten the trading hours from whole-day to half-day trading so the traders could go home before the curfew period. Trading during the quarantine period was seamless despite these three immediate and significant changes we had to implement. The PSE has since reopened its trading floor last June 1 but has limited entry to one trader per booth from the previous two to three.
To strengthen investor confidence and protection during this period of extreme market volatility, we implemented two changes to our trading rules. We tightened the trading band for stocks by reducing the lower threshold from 50 percent to 30 percent but retained the upper threshold to 50 percent. This means that a stock’s price for the day can now only go down to a maximum of 30 percent and not 50 percent as before. We also introduced a three-level circuit breaker policy from the previous one-level rule. Under this new policy, trading will be halted for 15 minutes if the PSE index drops by 10 percent from the previous trading session’s level; 30 minutes if index drops 15 percent; and one hour if index drops by 20 percent.
Many challenges remain for PSE. The PSE index and trading volume are still down by 21 percent and 9.6 percent, respectively, from the previous year. Foreign selling for the first half of this year increased almost five-fold to P68.3 billion from P14.3 billion for the same period last year. But as they say, for every cloud there is a silver lining. The first IPO for the year continues to trade at 196 percent above its IPO price. The second stock, which listed by way of introduction, continues to trade at more than 100 percent above its listing price. In spite of the pandemic, the PSE is processing the application for the biggest IPO ever in the history of the Philippine stock market. I believe in the resiliency of our market and I am confident that the market will recover to its previous level and it will do so earlier than the actual recovery of the Philippine economy. It’s common wisdom that the stock exchange serves as the barometer of a country’s economic health.
The pandemic did not spare my personal businesses. The profitability of one went down substantially; another business, which was quite profitable pre-COVID-19, is now just barely breaking even; and my travel business which was also quite profitable pre-COVID-19 has totally lost its business, leaving me with no choice but to lay off many employees who have been with the company for many years. To ensure the survival and eventual return to growth of these companies when the economy recovers, I brainstorm with my managers regularly to think of how we can transform and adapt our business models to the new normal.
Definitely, this pandemic has had both positive and negative effects on me. I have started to drive myself to work again after so many years and must now struggle again with traffic. I leave my driver at home to do chores instead because I just don’t feel safe being exposed to him in an enclosed vehicle. Before the pandemic, I used to have lunches, cocktails or dinners with business colleagues and stakeholders. Now, I usually have a quick lunch by myself in my office as I’m scared to eat out even if restaurants have supposedly put precautions in place. There’s no question that person-to-person interaction is more productive and effective than e-mail or even Zoom meetings. I used to enjoy smoking cigars occasionally to de-stress but decided to totally abstain from it to keep my immunity strong. But the biggest negative of the pandemic on me is the pause on my travels, at the very least for the rest of the year. My twice a year visits to my two granddaughters have been curtailed and my time with them has been reduced to FaceTime.
But in spite of all the business challenges and superficial hardships I mentioned above, I consider myself to be very blessed and fortunate. The break in my busy schedule has enabled me to bond and spend a lot of quality time with my family. I’ve been able to find time to improve my cooking skills and catch up on my reading. But most important of all, I’m very thankful that the Lord has chosen to protect me and all my family from this ferocious disease and keep all of us in good health. After all, health is wealth. Let me end this article by quoting what the founder of Alibaba, Jack Ma, recently said: “For people in business, 2020 is really just a year for staying alive. Don’t even talk about your dreams or plans. Just make sure you stay alive, then you made a profit already.”
Edited by Rica Delfinado
Ramon Monzon is the president and chief executive officer of the Philippine Stock Exchange Inc. He has been at the helm of eight different companies, among them Carousel Productions, Karilagan International Travel and Tours Corp., and Xpert Air Services. He received an MBA from The University of Chicago Booth School of Business.
