Global Markets to 9th August 2020
- The Covid-19-catalysed innovation tidal wave is creating many investment opportunities.
- This structural transition is nothing new: it has been under way since the global financial crisis: Covid-19 has simply accelerated it.
- Low interest rates and bond yields have created a world of muted economic growth.
- The new investment supercycle has begun: businesses will need to be on the right side of the widening technological divide in a post-Covid world if they are to succeed.
Global Market Summary
Covid-19 has already wreaked economic havoc across the globe, and with cases back on the increase in much of Europe and a second wave looking increasingly likely as governments continue to relax lockdown measures, there is a risk of even further damage.
At global level, the pandemic is very far from its peak. So far, there have been some 19 million confirmed cases in 188 countries, and over 700,000 people have lost their lives. According to the World Health Organisation, Latin America is the current epicentre, with Brazil and Mexico among the hardest-hit countries.
But the devastation created by coronavirus has been accompanied by a tidal wave of innovation, revolutionising how businesses operate on a daily basis and effecting permanent change in the lives of consumers. This innovation will mean long-lasting change to global business.
More and more industries are leveraging these technological innovations, with many businesses now in a position to use their workforces more effectively – at both regional and global level. As digital technologies make more decentralised business models possible, people find themselves drawn away from large cities and into the suburbs.
Many people view these last few months as a period of transition in our lives, but the reality is that these structural changes have been under way since before the pandemic began. Many of them have their origins in the 2007/2008 global financial crisis. Indeed, most innovative businesses had already implemented low-cost, efficient models, and they will find themselves well equipped to weather this crisis. Companies based on the old-economy style business models, on the other hand, are more likely to perish.
Following the rafts of measures implemented by the world’s leading central banks over the last decade, we find ourselves in an environment of zero or even negative interest rates, similarly low government bond yields and eye-wateringly high levels of national debt. Adding Covid-19 to the mix has made productivity growth even more of a challenge, contributing to this muted period of economic growth and inflation.
At the same time, further uncertainty is being generated by the impending US-China confrontation over both trade and – possibly more importantly – the issue of intellectual property.
However, all of these factors – many of which have enjoyed a great deal of prominence during the pandemic and the lockdown – can also spell new and exciting investment opportunities.
Social-distancing enforced on-demand consumption has driven many consumers away from the high street and onto their sofas where they stream entertainment onto their televisions.
Digital payment is also increasingly prevalent, bringing with it a wide array of investment opportunities. Analysts are predicting that some 6.1 billion people will be paying for goods and services using digital means by 2023. And the digital transformation has catalysed a mass-transition over to cloud computing.
Robotics and automation are other areas of innovation in which competition is becoming increasingly fierce – whether applied to electric and autonomous vehicles, increased productivity in factories and warehouses or simply drives to reduce rising labour costs.
In healthcare as well, scientific breakthroughs are resulting in numerous biopharmaceutical and diagnostic tools being developed to address our medical needs. Needless to say, these innovative new technologies are being put to good use in the drive to develop a Covid-19 vaccine, but they will also soon be showing their worth in robotics for assisting surgeons, in glucose monitoring, in immunotherapies and in various other customised genetic therapies.
If there is one thing that we have learned from the last few global crises, it’s that regardless of their nature, rethinking traditional asset allocations to factor in the fast pace of innovation and the way it is revolutionising the way we work and spend our leisure time is always essential.
Many of these exciting investment opportunities are already being captured by our investment strategies: although the financial markets will remain volatile and (at times) unpredictable, the Internet of Things is already a reality and the next super cycle has begun.
Finally, as far as financial planning and innovative thinking are concerned, we have put together a number of “strategic insights” documents. If you have not already read these, feel free to access them – either via our website or via various media platforms.
Peter Lowman is the Chief Investment Officer at Investment Quorum, a Director of the company and an integral member of our investment committee.
This article does not constitute specific advice and investors should bear in mind that capital invested is not guaranteed. Investment Quorum is authorised and regulated by the Financial Conduct Authority.
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