The famous American-born investor Sir John Templeton once declared that the four most expensive words in English are “this time it’s different”. At first glance, it might seem that in the case of Covid-19, the phrase is warranted. After all, a whole slew of industries are being badly disrupted – airlines, cruise lines, retailing, shared office space, cinemas – forcing investors to think through the investment implications.
Then again, the cynic might suggest that Covid-19 will just reinforce trends that were already emerging, but perhaps less evident before the crisis. This alternative view is perhaps best expressed by controversial French novelist Michel Houellebecq. Asked recently what might change in modern society after Covid-19, the infamous pessimist responded that he believes the world will be just the same – only worse. Top of Houellebecq’s list of concerns? The slow decay of traditional communities in the face of rampant atomisation and loneliness.
That brings us nicely (if cheerlessly) to one pre-existing trend that has almost certainly been super-charged by the virus crisis: the rise of online entertainment at home. Might “working from home” be more accurately described as “watching more Netflix at home”? Netflix gained 15.8m global subscribers in its first quarter and expects to gain another 7.5m in its second quarter. Its shares have actually risen in value since the Covid-19 outbreak.
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But this might be just the tip of the iceberg. Take online gaming. US TV network Fox recently hosted “eNascar” in place of a “real” Nascar racing event, attracting more than 900,000 viewers and making it the most-watched TV event in the history of e-Sports in the US. Meanwhile, gaming platform Steam recorded a record number of simultaneous users on 15 March, with 20 million players online and 6.2 million in-game users. Many companies involved in the gaming sector have, like Netflix, seen their share prices rise during the Covid-19 lockdown.
Bricks, clicks and robots
Another pre-existing trend that will only intensify is that of “clicks vs bricks” – or more pointedly, “the slow death of the high street”. Again, the tech sector already shows us some clear winners, ranging from logistics specialist Ocado and online fashion retailer Boohoo in the UK to the omnipotent Amazon in the US. But bricks can also be found in office blocks. Now the value of these spaces is actively being questioned. Even before the crisis, shared office space groups such as WeWork were in trouble. The Covid-19 crisis and the attendant shift to working from home will only exacerbate the issue.
If we’re not visiting the high street or office spaces, then it’s reasonable to assume that we might not be moving around quite as much outside the home in the future. That’s great news for electric bike and scooter manufacturers – but it also accelerates the trend towards decarbonisation. As one broker’s research note observed recently: “it has not gone unnoticed how some of the regions that have seen the highest incidences of Covid-19 infections, including Wuhan in China and Lombardy in Italy, have elevated levels of air pollution.”
The few that escape working from home and walk (or bike) to work, might soon start to encounter more robots than humans. In Singapore, a robot is prowling parks uttering warnings about social distancing. More relevantly, many industrial businesses worried about physical distancing are considering investing more in automation technology, in part to improve productivity, but also to cut back on health risks. Amazon, for instance, has come in for some criticism for its warehouse social distancing policies and is already a huge investor in robotic technologies.
The rollback of globalisation
A more drastic shift may be the rise of “deglobalisation”. The consensus is that supply chains have become too elongated and too reliant on China, especially for key industries. President Donald Trump’s tariff battles presaged some of these concerns – but now we might see a full-scale reversal of free trade. A recent piece in Bloomberg, which looked at an index of global trade compiled by the Dutch government, noted that the level rose steadily from 2000, paused in 2009, and is now firmly in decline.
If these huge, cost-effective, just-in-time systems do unwind, there might be a real, tangible cost. Products and especially services might start to cost a bit more, in turn feeding through into higher prices for consumers. Rampant, society-wide inflation is unlikely to be a huge challenge in the short term as economies tip into deep recession (although tell that to US buyers of pork products, where prices are climbing sharply). But over the medium term, any rebound could soon run into inflationary headwinds, especially if all the extra monetary and fiscal easing slams into supply-side constraints, pushing up wages sharply. That might be bad news for many bonds – but better news for gold, and perhaps paradoxically for equities, which tend to do well in mild inflationary conditions.
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