Coming out of Covid-19

While there have been many sectors that have been negatively impacted by COVID-19 such as travel, hospitality and retail stores to name a few, there have also been some sectors that are benefiting from the shutdown. Supermarkets have done well with stockpiling and panic buying, communication as people rush to connect to the NBN and healthcare has seen a greater demand for health products and services.

I wanted to share with you below some points in a recent whitepaper from the Fidelity International investment team (The New Economic Order). Shutdowns have redirected consumption away from physical stores and towards e-commerce and home delivery. While the move towards online food retail was happening prior to the pandemic the take up was slow and is now accelerating. People are also giving more focus to their well-being, benefiting athletic apparel and companies that benefit quality of life.

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Technology revolution

One big winner out of the crisis has been technology. It is the first crisis where technology did well in the boom leading up to the global recession but has also been very resilient during the downturn. In particular we are seeing the growing dominance of “big tech” companies. Many are leading the way in cloud services, connectivity and online transactions. They benefit from having products that are critical for many consumers and businesses and have strong recurring revenue streams and dominant market positions.

The whitepaper notes that as a result of more people working from home we will likely see consumers invest in digital equipment for their home own offices. Telecommunications technology and connectivity, contactless payments, education and medical consultations should be long term beneficiaries. Companies that own the online platforms and the connectivity providers that deliver them for these services will be winners. Demand and rollout for 5G will increase as there is greater online activity.

Other tech related industries that should do well going forward include data collection and data centres, cloud services, machine learning and algorithms, artificial intelligence, 3D printing and electric vehicles. Many of these industries like cloud services currently have relatively low take up so are likely to see significant growth post COVID-19.

The new healthcare

The authors also point out healthcare winners including pharmaceutical and biotech companies which are leading the battle against the virus and could see easing of regulations due to their role which is likely to give them more pricing power. Diagnostics and testing should also benefit from greater funding in future as they are an economical and critical way to identify the spread of the virus.

Telemedicine which involves treating patients remotely, has seen a significant increase in demand and this should persist long term as part of continuing investment in healthcare IT and digitilisation. They also point out that hospital systems in some parts of the world have been significantly underfunded and would expect increased funding in future so they are better prepared for a possible future pandemic. Increased funding costs for the healthcare system are considered low compared to the financial destruction caused by shutdowns.

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Conclusion

There were some trends in society that were occurring prior to the pandemic but with low or slow take up rates that will now accelerate post pandemic. Industries that will benefit from these growing trends and will likely be the biggest winners include healthcare, communications and technology.

The World Bank estimates that global GDP will fall by 5.2% in 2020 with China, the US and most of Europe and Australia now either entering or in recession. As China was first into the crisis, it is likely to be the first out of the crisis. Share markets globally have recently recovered strongly mainly due to the amount of liquidity being injected into markets by central banks and governments. We still believe exercising caution is appropriate as negative economic data comes through, particularly in relation to unemployment and bankruptcies.

If you wish to discuss any concerns about the current market or about any strategies to do with your financial plans, do not hesitate to call your Financial Adviser.