The global coronavirus outbreak has changed everyday life in profound ways ― and will likely reshape the future as well. Tony DeSpirito, Co-Manager of the BlackRock North American Income Trust plc (LON:BRNA), identifies five areas of change that could have implications for investors.
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This is no ordinary moment in history. The COVID-19 outbreak is likely to prove a defining moment for individuals, businesses and industries worldwide. We believe it’s important to look past the next few weeks to the months and years ahead. Chances are the world will look very different than it did when we started 2020 ― and that can mean new avenues for investors to explore. These are five areas that may look very different as the world recalibrates in the wake of the global coronavirus pandemic.
1. Technology to power a low-contact world
Technology was a strong performer before the crisis and is poised for continued strength. The crisis has turbocharged trends already in motion: remote offices, online education, online gaming and streaming. We expect these and many more manifestations of a virtual life will only accelerate and the software and infrastructure to support them will be in increased demand.
Beyond that, technology to power contact-free activity of all sorts could benefit. Consider driver-less delivery, telehealth and eSports. 5G could also get a boost as speed of data transfer becomes a more imminent need in remote work settings.
2. Global vs. local debate
To the extent countries look inward to care for their populations and economies, we could see a move from the decades-long trend of globalisation to regionalisation or localisation. U.S.-China trade tensions had already prompted questions about the location of global supply chains and risk of concentration. Coronavirus intensified the attention.
Supply chains will need to diversify to enhance their resilience. Many countries will likely look to bring manufacturing home. Yet shifting from a concentrated to a more diversified supply chain will come with costs. Companies can either absorb these costs (which would hurt profitability) or pass them on to consumers by charging higher prices for end products (which would be inflationary).
3. Company balance sheets reconsidered
The definition of a “solid” balance sheet may be rethought. Companies are designed to withstand recessions, but not months of zero revenue. We’ve already seen some companies in deeply affected industries cut dividends and seek to raise capital to secure greater liquidity. Many of these companies had more debt than they should have. They may have made acquisitions but taken on debt to do so. We believe use of leverage may be reassessed.
4. ESG accelerated
We see the coronavirus crisis as a defining moment for ESG (environmental, social and governance) -related investing. The way individual companies have behaved toward society in this crisis will be remembered and business will favour those deemed to have done the right thing by their employees, customers and communities. At the same time, coronavirus has reminded us that when it comes to human vs. nature, nature often has the upper hand. This could be a pivotal point for environmental considerations such as climate change.
ESG is no longer only about controversies and downside risks but we believe will increasingly impact company fundamentals and valuation multiples. Investors, it seems, are paying attention: sustainable strategies have outperformed in the recent downturn and continue to attract inflows.
5. Slow ease back to leisure
Leisure is likely to be depressed for quite a while as virus concerns weigh heavily on hearts and minds worldwide. Once a vaccine is in place, however, we expect to see a healthy rebound in leisure travel. As the world returns to “normal,” people will want to get out and experience life to its fullest again. History is worth revisiting here: The 1918-1920 influenza pandemic coincided with the end of WWI, which was followed by the roaring 20s.
Work-related travel may be another story. Company managements now have real-time evidence that video conferencing is both an effective and economically efficient alternative to in-person meetings and events. Business travel may never return to pre-pandemic levels.
The day will come when coronavirus is a memory. We are all in anxious wait. Until then, the ability to look beyond the current moment, think critically about the world and invest in its future potential, truly sets active management apart.
Unless otherwise stated all data is sourced from BlackRock as at May 2020.
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