The spread of the Covid-19 coronavirus has had a significant impact on markets around the world, as one-by-one economies were forced to shut down and are only now beginning to re-open.
Nevertheless, there will be some areas that should stand to benefit as the world exits lockdown and new patterns and trends begin to take hold.
“Covid-19 is one of those rare events in history – like the Great Depression and fall of the Berlin Wall – that will completely reshape geopolitics, societies and markets,” said analysts at Bank of America Merrill Lynch. “It is likely to be a catalyst for further tectonic shifts in the US & China decoupling, peak globalisation of supply chains and central bank quantitative failure.
“The consequences could be far-reaching, ranging from social unrest to further instability in oil, new economic doctrines, and re-evaluation of the social contract in sovereign states.”
They added: “We expect this pandemic to accelerate many macro trends that would have taken five or more years to play out before, from peak globalisation, to renewed tech wars and a reappraisal of healthcare systems and government influence.”
Below, Bank of America Merrill Lynch analysts highlight five themes they estimate have a total market capitalisation of $20trn in investment opportunities set to emerge after the pandemic ends.
Geopolitics & globalisation
One of the most notable trends likely to emerge after countries begin to exit lockdown – and one which is likely to be accelerated by the pandemic – is the end of globalisation.
“The ascent of China and the decline of US and European manufacturing since 1990 led to a rise in anti-globalisation sentiment even before Covid-19, boiling over with the US-China trade wars,” the bank’s analysts noted.
“This pandemic could significantly ramp up geopolitical tensions relating to manufacturing jobs, security of supply, technology and privacy risks, and import over-dependence in critical areas (e.g. tech and pharma), particularly on China.”
Furthermore, an increased focus on sustainability, social impact and climate change should also accelerate the de-globalisation trend, as consumers prepare to pay a premium for locally sourced products.
This theme should benefit areas such as automation, industrial software and clean technology, while challenging sectors including shipping, materials, fast fashion and fossil fuels.
Tech war
Another theme likely to have been accelerated by the coronavirus outbreak – and related to increased geopolitical tensions – is the potential for conflict over technology.
The lockdown conditions necessitated by the pandemic have accelerated structural shifts in consumption and working conditions, according to Bank of America Merrill Lynch analysts, as well as the use and deployment of technology.
“The lasting legacy of this will be a combination of new communication infrastructure, data generation, cloud computing power, and bandwidth,” said the bank’s analysts.
“Underlying infrastructure may differ regionally, though, due to on-going trade tensions, which technology is at the heart of.”
One impact, according to the bank, is that it could pull forward the commercialisation of ‘Moonshot technologies’, including autonomous vehicles, quantum computing and vertical farming in the race for technological supremacy.
In addition, trends such as working from home, ecommerce, and stay-at-home activities (such as streaming and eSports) could see increasing long-term adoption.
“However, there are several short-term challenges,” they warned. “Economic uncertainty may constrain overall demand and funding. Concerns over social distancing may negatively affect sharing economy platforms. Increased data tracking and personal monitoring raise privacy and ethical concerns that will vary internationally.”
Beneficiaries of the ‘tech war’ theme include companies involved in cloud services, 5G, processing power, robotics and autonomous vehicles. Challenged companies will be found in ‘old’ media and bricks & mortar, while privacy and the ‘sharing economy’ will come under pressure.
Big government
The coronavirus has seen the role played by governments in its citizens’ everyday life increase dramatically, as significant steps have been taken to protect health and jobs.
And it’s likely that growing surveillance, inequality and the current inadequacy of some healthcare systems versus others highlighted by the current crisis will act as a catalyst for change in politics, “furthering populism trends and increasing the risk of social unrest”.
Governments are likely to continue favouring stakeholders over shareholders in business, as has been seen with bank dividend payments in the UK.
“Further, this crisis has made the technology industry useful – if not vital – for implementing government power,” the bank noted. “We think this is unlikely to reverse, resulting in a renewed debate about the rights of the individual and privacy but including the role of government in this conversation too.
“Finally, similar to funding post defence-related and other crises, government spending on personal safety will remain elevated compared with pre-Covid levels for years to come.”
Stakeholders will likely benefit from this theme, as will ESG (environmental, social & governance) investing, with companies focused on technology and safety likely to stand out. Meanwhile, debt investors and equity holders could find themselves bearing the brunt of this theme, while privacy will also likely suffer.
Health
More people are likely to understand how important a healthy and productive population is for societal welfare ‘economic or otherwise’, according to Bank of America Merrill Lynch. As such, healthcare is likely to play an even more important role in ESG considerations going forward.
“Covid-19 will amplify the importance of healthcare and its social role and accelerate other pressing global public health issues such as drug pricing, antibiotics resistance, future pandemics prevention, universal vaccines for all, etc,” said he bank’s analysts.
And how money is spent on healthcare will also likely to change.
“Overall, roughly 10 per cent of GDP is spent on healthcare globally, yet 20 to 40 per cent of this is wasted,” they added. “A more efficient system that focuses on value-based outcomes, preventative care and greater use of technology – big data, artificial intelligence, telehealth, wearables, etc – will be important in securing a healthier world population post-coronavirus.”
As such, health technology companies are among those tipped to thrive in the post-Covid environment, while those serving more traditional healthcare methods will struggle.
The new consumer
Finally, the pandemic is likely to lead to new consumption habits that ‘Gen Z’ – typically those born in the mid-1990s to early-2010s – may be uniquely prepared for.
Streaming, social media and ecommerce will be among those technologies that other generations will have to become more comfortable with.
However, Gen Z and Millennials – the generation that became adults around the turn of the millennium – are most exposed to reduced earnings potential over the long term.
“This global pandemic could result in a slowdown or reversal of the decades-long march to pull billions out of poverty – just a 20 per cent fall in income could push over half a billion people into poverty,” the banks warned, adding that there could also be a baby boom once the pandemic ends, “as seen after many famines, earthquakes, and disease outbreaks”.
New media and companies involved in the payments industry should stand to benefit from this trend, while businesses focused on the traditional consumer will be at a greater disadvantage.