Life After Covid, Part I

Feature Stories | Jun 02 2020

There has been much speculation life will have changed inexorably once the pandemic has passed, but will it? Such predictions inform where we should invest from here. Researchers and analysts offer their views.

-Will there be an "after covid"
-Eating, shopping, working...what will change?
-Online or out of business
-A return to old norms

By Greg Peel

Before we can truly consider what life might look like after covid, there has to be an “after covid”. In order to avoid an economic impact of greater devastation than the virus itself, economies have been gradually reopening, deciding the balance of risk is worth it. But much hinges on an actual vaccine being developed.

The stock markets of Australia and the US have regained more than half their initial losses based on three key factors – massive fiscal, and unlimited monetary support, staggered lifting of lockdown restrictions earlier than first assumed, and the assumption that there will indeed be a vaccine by early next year, if not late this year.

Points to note:

US biotech giant Merck developed a vaccine for Ebola in 2014. It was approved by the US FDA six months ago;

While there is a vaccine for the flu, of which covid is a variation, the flu has never gone away, but rather has continually mutated, and there remains no cure for the common cold;

Covid-19 is also a variation on SARS, and to date a vaccine for SARS has never been found. Rather, SARS mysteriously disappeared on its own.

So, a vaccine might be found for covid-19, or the virus may be with us forever, or it might go away by itself. State governments in Australia and the US, and elsewhere, are taking it for granted that reopening the economy opens the door to a second wave. But unlike the situation when the gravity of this virus first became apparent, governments are now confident they have the testing capability, tracking capability, PPE and bed supply to quickly nip new outbreaks in the bud.

This is not 1918.

We might safely assume that were covid-19 not to be vanquished, then yes, our lives will be very different from now on – much more akin to the two months we’ve just been through than those hazy, crazy days before March. However, when it comes to speculating the near to medium term future, analysis from the investment community assumes there will literally be an “after covid”.

The entire global team of analysts at US-based Jeffries Equity Research has pondered the question of life after covid, and this is what they came up with:

“Three key themes emerge from our speculation. First, we will do more for ourselves: self-quarantine entails more self-reliance. Second, we care more about ourselves, our environment and our fellow citizens. The only thing we don’t care more about is money. Third, we slow down. We consume less, focusing on pursuits and experiences and loved ones. We work hard but our careers don’t define us anymore.”

Really? I’d say for about five minutes. Although that would be to play Grinch to Pollyanna.

Yes, more self-reliance is an obvious starting point. Many of us have learned to cook and bake for the first time, discovered hobbies we never knew we’d enjoy, learned how to entertain ourselves beyond Netflix binging, become confident in accessing online shopping and communication platforms, and finally mastered Year 6 maths.

Yes, we may now have a much greater appreciation of the expression “work-life balance”. As for the environment, Australians, at least, were already on to that one. As for fellow citizens, yes indeed in the case of health workers, but as for that lady with the trolley overflowing with toilet paper…

Sydney beaches had to be closed twice, because beach-goers ignored social distancing requests. This is one example of how care for our fellow citizens might be a stretch, particularly given a “better to die on your feet than to live on your knees” attitude from the masses.

While we may have come to appreciate from a wider perspective that money isn’t everything, and that money can’t necessarily buy happiness, or health, I’d wager that in the short term many of us are going to be a lot more worried about money once deferred mortgages, rents and bills will have to be caught up. Assuming you still have a job. This is the more likely reason we will consume less.

“Our careers don’t define us anymore” ties back into the work-life balance concept, while as for experiences, well maybe, as long as it doesn’t involve a cruise.

Jeffries’ key themes, however rose-tinted, nevertheless translate into a selection of winner and loser stock market sector and sub-sector recommendations, which rather brings us back down from the utopian heavens to investment realities, an irony not lost on the analysts.

Winners: grocery, video games, sportswear, semiconductors, payments, internet, software (SaaS), biotech & pharma, telcos and IT hardware.

Losers: airlines, luxury goods, fast fashion, beauty, travel and leisure, fitness, real estate, food service distributors and restaurants.

Much of the above relies on the virus having changed our world, not just disrupted it. For example, grocery as a winner implies many will have a newfound love for home cooking, which balances out against losers food delivery and restaurants, but for every new Margaret Fulton surely there will be those just dying to get out and have someone else prepare a meal, eaten anywhere other than at home?

Winners sportswear and IT hardware play to the work-from-home theme, but we already know casual-wear and home office equipment sales leapt during during the lockdown, so can these be sustained? Working from home has its pros, but also plenty of cons.

Beauty as a loser? As a former prime minister once said, never stand between a woman and a bucket of cosmetics.

Anything to do with online and cloud is a fair call as winners, and airlines and real estate as losers, but of course at this stage of the game, it all comes down to where the market is already pricing them.

We could break this down further, but many a researcher already has, and not all are as misty-eyed as Jeffries.

Retail

Morgan Stanley does not subscribe to the view the easing of lockdown measures represents the beginning of the end of virus impact on the retail industry. Social distancing of various degree and severity will continue, the analysts suggest, until a vaccine is found, which they hope is by mid-2021.

Changes to consumer lifestyles, and thus spending patterns, are likely to last much longer, Morgan Stanley believes. Retailers are likely to emerge with weaker balance sheets and ill-configured store portfolios. But at least for now, they are likely to face less competition.


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