The Covid crisis is accelerating many long-term disruptive forces acting on economies and financial markets: sectors such as transport, energy and banking will have to rethink, others such as technology and healthcare will have enormous growth opportunity. There will be winners and losers: the ability to distinguish who they are is therefore becoming crucial.
Political and financial authorities and central banks react to the serious economic crisis triggered by the pandemic with extraordinary measures: their interventions, exceptional in speed and quantity, have supported the markets. Unfortunately, the spread of the virus worldwide continues to rise and the data reveal record drops in GDP. The consequences of the Covid pandemic will be felt for a long time, reflecting in the general weakening of the fundamentals, with the taking effect of the long-term disruptive forces that were already in place.
We can observe some of these forces that are changing the markets (and not only) and that the Covid crisis is making stronger by analyzing two very interesting elements: the new innovative and autarchic push of China and the expansion of the technology sector.
The Covid crisis will boost China-US confrontation, protectionism and global reforms
Made in China 2025, China’s strategic economic plan started in 2015, is an ambitious program financed with hundreds of billions of yuan of public funding to transform the country into an economy with higher value-added production and services.
Made in China 2025 includes sectors such as IT and robotics, machine learning, electric vehicles: the program is aimed at overcoming the traditional role of “factory of the world” played by China and making the country more self-sufficient. This program has become increasingly appropriate, as world trade has been decreasing since the financial crisis of 2007-08 and tensions between the United States and China have recently re-emerged.
The desire of each country to protect its workers from foreign competition and to shorten production chains could further reduce world trade and push de-globalization.
Fewer commercial exchanges between the two major world economies could also accelerate their competition for dominance on the technological front, increasing the race for innovation, in areas such as, for example, 5G and the robotization of services, including medical ones.
Technology sector: the Covid crisis gives incredible growth opportunities
About half of humanity has been or is still in some form of lockdown and, for those who can access it, technology has become even more necessary: online shopping, smart working, video conferences, school and much more. Internet use is estimated to have grown by 40% since the beginning of the year in all major economies, especially in sectors such as healthcare, education, retail, leisure and entertainment.
This crisis has pushed and accelerated the integration of technology into many of our daily lives.
In the meantime, companies quickly adopted and deployed cloud services to keep their operations uninterrupted: in China, the use of an online platform, managed by one of the major US remote service providers, increased by 22 times in March, while downloads of Zoom’s online video conferencing services jumped 141% in March compared to February this year.
Markets and companies will change a lot due to the Covid crisis
With the end of restrictions and the pandemic, economies will recover from the recession, but to assume that it will happen quickly and everything will return as before is certainly wrong. Old inefficiencies have become evident and new preferences have emerged (smart working is a clear example), the changes brought about by the Covid crisis will be lasting and with important implications and consequences.
Some economic sectors will probably benefit more than others from changes in consumer behavior and changing preferences, so to speak will be the “winners”. On the other hand, some areas may face greater difficulties as a result of the changes, and may emerge as losers. What will mark the distinction between success and failure will probably be the ability and flexibility of each company, sector or region / country to adapt to changing behaviors and requirements, and to evolve.
Above all, identifying winners and losers will become increasingly relevant for investors. There will be winners and losers in all countries and sectors and recent market dynamics could provide an indication in this regard.
Data show that demand for healthcare and technology benefits from the Covid crisis, while traditional manufacturing, financial institutions and energy are the sectors that have suffered the most. In a world where technology is driving and international trade is reduced, the need for oil should be reduced and the demand for automation should increase. Industrial models of banks could be challenged by protracted low interest rates.
Governments have begun to ease lockdowns, but the financial and economic recovery will not be easy. Therefore, investors must understand that the way to achieve their financial goals will be different from what was thought even just a few months ago, because the winners will win an even greater slice of the cake at the expense of the losers. The ability to distinguish who they are is therefore becoming crucial.
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