Will there be investment ‘winners’ and ‘losers’?

It always feels a little inappropriate or potentially insensitive to be talking about ‘winners’ from something as significant and life-changing as a global pandemic, however, it’s a thought process and economic analysis that many in business and investment are going through.

Will there be investment ‘winners’ and ‘losers’?

It’s a necessary part of planning to understand the nature, progress and eventual recovery from the pandemic in order to protect or even grow wealth. It’s fair to say that whilst it’s widely expected that the economy will recover fairly quickly and bounce back from the pandemic, that the world won’t be quite the same for some time.

So how should we expect that to change and what will the medium-term future look like until normality is restored? Will normality ever be restored?

The answer to that answer is complex and subject to a rapidly changing situation, but the best guess is that in the short term things will be very disruptive whilst governments and society work out a way to work and re-start the economy, whilst protecting public health. The medium-term will involve a return to work and life as we know it, but full of masks and distance. In the long-term we will gradually return to the way we were as either a vaccine or effective treatment comes in.

That being said, the time it’s looking likely to take to reach the return to complete normality is looking increasingly as though it will prove too long to hold on for many businesses and industries and so as an investor or individual looking to protect wealth it’s important to understand how.

Losers

Let’s get the negative stuff out of the way first and foremost. Let’s be realistic, travel and tourism is probably going to bear the brunt of the storm until next year.

Governments around the world are recommending measures such as empty middle seats on aeroplanes and, by most estimations, it’s simply unworkable and wouldn’t allow most airliners to make a profit.

They’re already on fine margins as it stands, so the reality of having to reduce their seating by up to 50% doesn’t bode well for an industry that looks set for prolonged and quite pronounced pain. It also doesn’t help that whilst consumers seem keen to get back to some sense of normality, fear appears to be quite deep seated at this point.

Secondary, and probably obviously, is the tourism and hospitality industry which will struggle enormously even if the health secretary’s predictions that summer holidays won’t go ahead prove untrue.

Countries across Europe which rely heavily on tourism will suffer, but in the UK café’s, cinemas, pubs, bars and restaurants could suffer significantly and may even go out of business sooner rather than later; if that’s the case then a recovery could take years to take place.

Oil and gas and other fossil fuel commodities have seen demand collapse in just weeks as populations across the world no longer need their cars or transport. It’s well documented that oil prices in America went negative for the first time in history.

Finally, traditional retailers will suffer hugely as footfall on high streets and in shopping centres isn’t predicted to return to pre-pandemic levels this year. That’s a long time to be treading water hoping for a recovery that may never materialise.

Winners

As much as anybody can be a winner in a global pandemic, history is littered with economic corrections that have left a completely new landscape, this will likely be no different.

Let’s get the obvious out of the way. Property markets in all their forms are going to win in the long term. The investment world is on its head right now and so volatile it probably feels like riding a mechanical bull.

Property investment represents less of a calm in the storm and more of a parallel, horizontal line on a graph that looks like a scribble.

In commercial property it’s absolutely true that retail premises are going to potentially become a desert in the short term, but it’s more than likely they will find new uses over time and also, with a huge shift towards online retail there will need to be an enormous growth in warehousing and storage.

On residential housing, it’s looking increasingly likely that people’s houses will start to become their office, their gym, their recreational space and any number of other things. With that in mind it’s quite likely that opinions will shift towards spending extra disposable income on larger properties rather than spending in other areas.

If there’s a significant shift towards this viewpoint, then expect demand to rise disproportionally to supply with prices and yields rising strongly.

In other areas of a changing economy online retail, logistics and big tech are all going to be huge winners as people spend more time and money online. Companies that supply products and services quickly and efficiently will see a huge boom in demand not just in the short term, and the logistics companies that supply them will follow.

Finally, and perhaps most obviously, British and American pharma are going to be in for a very strong, very pronounced, very long uptick in fortunes. The scientific view appears to be coalescing around the view that a vaccine now seems inevitable, and with Anglo-American companies leading the race they may well be required to vaccinate up to 60% of the global population within 18 months.


Leeds Guide vertical - April 2019

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