Before we look at the post-pandemic world, let’s look at
where we are today. China and Korea may be post-pandemic already while in
Europe, except for the UK, countries seem to be on the downslope with some
cautiously opening. Chaos reigns in the US. Everywhere, vaccines seem to be
still many months away from general use. This patchy situation leaves everyone,
not least investors, very uncertain and is seen most clearly in where people
are putting their money. Investor sentiment is sometimes (not always) a
reasonable way of gauging future directions of the planet.
Right
now, investors are expressing their uncertainty through their preference for
cash-like instruments. Gold is heading towards the August 2011 50-year high of
around USD 1,825 an ounce and, despite the US chaos, the US dollar’s de
facto status as the global reserve currency is keeping it strong. Even with
the strong dollar, Bitcoin is back to well over US$ 9,000.
“Cash is king (or queen)” again.
The story on Bloomberg is that Asia is the place to be for
investor value, especially given the growth opportunities and the fact that a
number of countries in that area are in the post-pandemic phase. But we
are more interested in the industrial sectors – it is here that the future of our
world is being written.
In an earlier post I talked about the increasing trend
towards digitization now that the enforced home-working and virtual education
has become part of our daily lives and has been found to be at least acceptable
and, in some aspects, even preferable to traveling to work and school. While it
is not going to work for all organizations, jobs, or schools, certainly not all
the time, enough people have seen enough benefits to want to continue to some
degree.
When Twitter CEO Jack DORSEY tells his almost 4,000 employees that they
can work from home permanently, we know that the world has changed. When Warren
BUFFETT, CEO of Berkshire Hathaway (ranked 3rd on the Fortune 500
largest US corporations), sells all their holdings in US airlines we can be
sure that the old ways of traveling, especially the profit-producing business
travel, are not going to return any time soon, perhaps never.
Corporations hit by the COVID-19 lockdowns are going to be
looking closely at their costs: employees, offices, travel, . . .
Employees: Many firms have ‘let people go’ – a namby-pamby
euphemism for firing people. Will they hire them back? Probably not in the same
numbers, and probably not all on the same contracts. Will they push the already
established trend of employing people on short-term, or project-based
contracts? Will they outsource more noncritical functions? It’s a fair bet.
They have seen that many of the firms’ business operations can work fairly well
with home-working, so why not continue?
Offices: Prestigious city-center offices have long been a
status symbol for many firms and seen as necessary for attracting the best
people. With cash-drained Balance Sheets, are they still a necessity? I don’t
think so. Many CEO’s will be asking themselves, “If we are not dragging people
into the city-center every day, certainly not in the same numbers, do we need
an expensive towering edifice?” In the
‘old days’, many people favored the city life because of the theaters,
restaurants, stores, and the rest. Will they want to face the risk of infection
by being is these crowded places again? If not, then the lure of the city will
be less strong. We can only guess the knock-on effect of these seismic shifts
in the real estate markets and probably on personal vehicle sales; not
forgetting the on the big stores now that home-delivery has become a new
normal.
Travel: Having proven the viability of holding effective
business meetings over Zoom, Skype, Meet, etc., and given the paucity of cash
and profits, first- and business-class trips are likely to be severely reduced.
Such ticket-sales are the lifeblood of airlines, and room rentals to these
travelers keep many hotels operating. A reduction in demand will have a major impact
on profits, even on the viability, of many travel-related organizations. Add
the probable reluctance of intelligent people to congregate in crowded areas –
such as aircraft and resorts – and you have the likelihood of a massive change
in the fortunes of many travel and hospitality-related firms.
So, an interesting narrative but what are the financial
analysts saying? In a recent excellent 85-page report, ‘The World after COVID
Primer’, the Bank of America’s Securities global research team carefully
analyzed the economy sector-by-sector, characterizing each according to whether
they would be a beneficiary of, or would be challenged by, the pandemic.
Work and employment-related: a shift towards consumer
staples and away from discretionary items such as cars, clothing, durables, luxury
items, travel, and hospitality. On the work-from-home front: towards telco
providers, new media, big tech, and away from old media (theaters etc.).
Offices and real estate-related: away from offices, shopping
malls, and hospitality venues, and towards data centers, telco towers, rural
and multifamily dwellings, and e-commerce facilities. With millennials more
likely to rent than buy (out of necessity or life-style preference) housing and
construction industries may well be further stressed. Further, in the
‘financials’ sectors, the decline in the number of bank and insurance branch
offices, following the digitization trend, could put even more pressure on real
estate prices.
Folks, this is just a glimpse at the post-pandemic world
from my perspective. For more, especially on the critical education sector,
look for future articles.
