The investment trends accelerated by Covid-19

We look at some of the long-term consequences of the ongoing pandemic.

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  1. Garry White

The Covid-19 outbreak is likely to change the way we think, work and live. It is accelerating trends that were already in place and changing people’s behaviour. All of this has implications for investors. Here we look at some of the long-term consequence of the ongoing pandemic.

Creating jobs by de-carbonising the economy

Creating jobs will be a priority for governments in a post-infection world – and investment in green energy and other de-carbonisation measures will increase. The European Union has confirmed that it sees green growth as its prime objective and investment in clean energy will help with the recovery. UK Chancellor Rishi Sunak also earmarked £3bn to create green jobs and improve the energy efficiency of public buildings. In the US, Donald Trump and the Republican Party are not so keen on environmental issues – and the administration wants to boost production of US coal. However, Democrat Presidential candidate Joe Biden uses the same language as the EU, offering a big ‘Green Deal’. He is currently leading in the polls and if he wins the White House in November this trend will receive a further boost.

Surging e-commerce

The high street was already in trouble before the pandemic, as business rates and rent are a significant fixed cost. Customers on the internet also do most of the work usually done by a shop assistant in a physical store. Lockdown has increased the addressable market of online companies, as people previously reticent about buying goods on the internet turned to internet shopping as their only alternative. This trend will continue after lockdown and retail businesses without an efficient online alternative will continue to suffer, benefiting the e-commerce giants. More weak retail chains will go bankrupt, and more will decide on a substantial slimming down of their shop estate.

Technology uptake

As people have got used to working from home, it is likely many will choose to continue to do so. Technology is vital to make this happen, with investment in cybersecurity, cloud computing and business-enabling software likely to surge. Companies are likely to support their staff working from home more, as it is likely to save costs in the long term. It is also inefficient to fly employees around the world, for example, when they have proved they can conduct productive meetings from home.

Property

Lockdowns have greatly accelerated the trend to online from physical shops and landlords are suffering from bankruptcies and companies negotiating rent reductions. For the market to stabilise, there needs to be a reduction in retail floorspace, which means city and town centres will continue to change. The pandemic has also highlighted the attractiveness of working from home, so the outlook for office demand over the longer term looks like it will be softer than before the virus emerged. Also, with people doing less commuting, home prices in city centres could be adversely affected, as it will make it easier for people to move further away from their place of work. This means the balance between city and country could shift, altering returns and players in the real estate industry.

Healthcare innovation

The fact that the crisis quickly overwhelmed many healthcare systems may spark investment in intensive care capabilities across the developed world. Supply chains are also likely to be changed significantly. India is the biggest supplier of generic medicines, accounting for about 20% of world exports, and it put restrictions on some key drug exports during the crisis. These were a direct result of factory shutdowns in China because, even though these drugs aren’t manufactured there, the base ingredients are. We are also likely to see accelerated growth of online pharmacy channels and telehealth providers, the increased use of data to monitor public health and a surge in automation, with technology such as sterilisation robots becoming more common.

Rising geopolitical tensions

Thanks to the recent trade war, companies were already questioning China-dominated production. The pandemic is likely to further pressure corporations to consider a supply chain either in their home country or in a closer, more stable trading partner in many industries – not just healthcare. This could lead to increasing protection and increase tensions between the US and China. Covid-19 is therefore likely to act as another catalyst for deglobalisation.

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