The future of Investing in a post COVID-19 world

Coronavirus Pandemic: A Wakeup Call for Investors

At the beginning of 2020, the global market was growing at an unprecedented rate and most investors and investment management firms were speculating about the “bull” market. However, with the rapid spread of Coronavirus around the world, everything changed. Offices, Malls, Cities and places of worship were shutdown, schools closed; everywhere and everything that seemed important suddenly seemed to become non-essential. The focus for everyone, customers, consumers, investors and businesses was survival.

The global crisis has changed our lives and the global business environment. Consumers have become more health and risk conscious, and their purchasing decisions are influenced by their renewed wants and needs. Therefore, investors and investment managers need to change their playbook and strategy as they continue the search for Alpha in a post Covid-19 world. Here are changes the industry should be aware of:

1. Globalisation vs Nationalism

With the advent and spread of coronavirus across the world, countries began closing their borders. The focus was no longer on global or even regional trade but national interest. Heightened trade wars between US and China, post-Brexit UK and the EU have raised questions about the future of the world. Is globalization sustainable? Should firms that promote internationalisation and proponents of global supply chains as a means of achieving economies of scale revisit their strategies? Global firms such as TikTok are experiencing these challenges and their global CEO stepped down after 3 months.

Governments and lobby groups are vying to bring more of their supply chain home thereby rebuilding local manufacturing capabilities. This has impacted all industries, and even the medical sector with governments seeking to nationalize Covid-19 vaccines. However, the macro and micro-economic impact of such changes are yet to be fully known. History shows that such costs are either borne by:

· Governments through public-private partnerships, incentives and tax reliefs

· Companies who may decide to partner with governments and absorbing costs, or

· Customers who may pay higher prices for products and services

2. Digital Technologies for a Socially Distanced World

Technology enabled firms outperformed the markets before the Coronavirus pandemic began and have continued to outperform market predictions even during the crisis. The rise in remote working, digital learning, video conferencing and various have also made on-demand services accessible via the Internet. Even in the fight against Covid-19, governments have utilized digital technology solutions to test and trace people who have come in contact with Coronavirus patients.

As such, it is expected that digital technology solutions would continue to outperform the market and innovative solutions would be developed in response to changing consumer behaviors.

3. Environment, Social and Governance (ESG) interests would be accelerated

The changes in consumer behavior and rise in health and risk conscious customers, would give rise to a proliferation of ESG conscious investors. Individuals have also expressed displeasure at the role of investment companies and investors due to closure of various businesses.

For instance, this article from the Guardian Newspaper shows that public sentiments towards Private equity firms and other investments vehicles are not positive. This could be the opportunity for ESG centric investors to double down on their strategy and position themselves as value creators for socially conscious individuals. Although ESG is not without its concerns, as proponents and antagonist argue about what a clear strategy should look like, during the Coronavirus pandemic ESG has become a clear determinant to investment decisions.

4. Quarterly returns and Cashflow should be reconsidered as key measure of organizational success

Phrases such as “cash-flow positive” and “year-on-year increase in revenue “should not be considered the only metrics of organizational performance. Instead, organizational performance must be re-evaluated in terms of contributions to community, diversity, pay equality, and ethical activism.

Such metrics reaffirm organizational contributions to society, increase a sense of community amongst employees and deliver better returns-on-investment.

5. Retail to slowly rise to pre-lockdown levels

Retail and leisure centers have been in lockdown since only “essential services” were allowed to remain open. Although, governments have put in place measures to reopen cities including retail and leisure centers as a means of boosting the economy, injecting millions of pounds with schemes such as eat out to help out, people see such incentives as a reason to go out again. However, a large number of customers still demonstrate some level of discomfort to participate in retail activities due to the compulsory use of face masks. This leads some to believe that once a working vaccine is found, people will patronize the retail and leisure centres as they once did at pre-Covid-19 pandemic levels.

6. Aviation may change forever

With the increased levels of nationalism and mandatory post-travel quarantine periods from one nation to another, the aviation industry is facing the greatest threat to its survival in recent times. Once successful firms such as Virgin are seeking bailouts for governments and other smaller regional carriers including Flybe and Jet2 have either collapsed or are making massive redundancies in order to survive.

With the rise in compulsory remote working policies, business travels are almost non-existent. Employees within organisations are using digital technologies including video conferencing tools as the most effective form of communication between employees and with clients across the globe.

The future of investment firms and investors would be largely impacted by how they respond to the six changes listed above. If the market forces are anything to go by, technology continues to be the biggest differentiator for investment firms and investors. However, future planning may mean that strategies and measures of success of trade pickers, investors and investment firms need to change to achieve Alpha.

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