Thread by @Trinhnomics

Hotel occupancy rate in Hong Kong in January was at 59% before the virus hits (think of all the sectors related to this - retail, food & beverages etc) - never this low before:

So it went from 59% (down from 90s a year ago & imagine those building these hotels project 90s for cashflow not half that) to now SINGLE DIGITS for Feb. Btw, we're in March & I heard it's even worse:

scmp.com/news/hong-kong…

Small business being left behind in bail-out packages (btw, the same in China, rate cuts etc don't get to small businesses as they are seen riskier & they are most at risk to be in trouble given shallow pockets).

scmp.com/news/hong-kong…

Imagine if the big guys like Four Seasons survive on single digits occupancy, the guys that distribute to them won't (F&B, workers etc) if this stays like this for a long time. And for HK, not just Feb but since last summer.

Okay, u say, well, so what?👇🏻

caixinglobal.com/2020-02-28/dil…

SMEs make up 99.8% of all companies in China or 18 million of them total & 60% of GDP.

They are key to ANY economy, including Hong Kong & mainland China. These are the people that buy goods from big publicly listed firms. They matter.

What has happened? Only 1/3 OPEN in China.

Costs to SMES don't disappear when their income/cashflow has.

Rent + utilities = 15-20% costs of restaurants, 30% for small retailers & 50% for small grocery stores. They can say get rid of variable costs but still got sticky costs.

About 85% of them will run out of cash in 3m

Banks have received money from the gov but they lend to larger enterprises first & medium-sized w/ collateral vs small ones.

Btw, it makes sense as smaller ones are riskier. So what? Well, help totally needed for small firms. Can't makeup for service income losses. Don't forget

Also, don't forget that this is about people. If u're missing labor & the bigger firms get the labor they need then:

Bigger firms = HIGHER COSTS
Smaller firms = No labor, no business

So however u slice & dice this, u can't square the missing of people in the output equation.

Global Times reporting much higher costs of production in China due to the higher costs of labor (note that system missing labor so they pay more to get high-demand workers) @MokJonathan 👇🏻

So what u say? Well, China is supposed to be efficient & cheap!

https://twitter.com/globaltimesnews/status/1235434563091853314?s=20

Here is the implication from this:

a) Higher costs of production for electronics = either erosion of profit margins for producer or higher costs for consumer (erosion of purchasing power)

b) CEOs have to consider, is it prudent to put all the supply chain eggs in 1 basket?

So?

So implication is:

a) We need to have some packages for the smaller guys & totally targeted b/c they don't benefit & if they get hurt then we got a major DEMAND problem as they are KEY

b) Once everything normalizes, risk assessment changes & that means change of investment 👈🏻👈🏻