INSIGHTS BLOG

WHO WILL BE THE WINNERS FROM COVID-19?

Mark Lister, 19 May 2020

As lockdowns lift and economies around the world begin to reopen, our way of living will likely return to normal. Or will it?

Over the last month or two, most of us have been forced to do things differently. Working from home, doing all our shopping online, using technology for communication even more than we did before, and using streaming services or gaming for entertainment.

Some of these adjustments might become more permanent changes to the way we live, while many trends that were already in place have been given an almighty boost because of COVID-19.


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There has been one particular comment from a global business leader that resonated with me, and that came from Microsoft CEO Satya Nadella. When discussing the company’s quarterly earnings report, he said that “as COVID-19 impacts every aspect of our work and life, we have seen two years' worth of digital transformation in two months”.

I think he is spot on, and as investors we would be wise to consider some of the longer-term implications of the last two months.

There are several trends that we have been strong believers in for some time, well before the COVID-19 outbreak. It now appears that some of these themes have grown even stronger, and that we will see some permanent changes in consumer preferences, behaviour, as well as the way we do business.

Microsoft, like many companies in the technology space, has found itself reassessed as essential infrastructure during recent weeks. None of us could’ve coped without these businesses that have provided us with the systems, software and connectivity to continue working and living as best we could through such an extraordinary period.

Even if things do eventually return to normal, flexible working will be more prominent and demand for the products that facilitate that will remain. American Express, Facebook and Google are allowing most employees to work from home for the rest of the year, while Twitter and Square have gone a step further and made that a permanent policy.

This hasn’t been lost on investors. Looking at the S&P 500 index in the US, the technology sector is the top performer in 2020 and the only sector in positive territory year-to-date. All other sectors are down, with an average decline of around 14 per cent.

Online shopping and the growth of e-commerce is another trend that was steadily gathering pace but has now been supercharged. US retail sales slumped 16.4 per cent in April, the biggest decline on record. Clothing stores were hit hardest with sales falling almost 80 percent, while the sole category to rise was online spending.

There will always be a place for bricks and mortar retail, but maybe not to the same degree as in the past. It’s hard to bet against the likes of Amazon and Alibaba against that backdrop, which is probably why both have seen their share prices gain this year.

The move to cashless payment systems could also speed up, benefitting the likes of Mastercard, PayPal and Visa. Again, this was already happening right across the globe, but social distancing measures and the benefits of contactless card payments will have improved these prospects further.

All of us working remotely all of the time, while only shopping online and communicating digitally is far from an ideal outcome. There would be many negative consequences for social interaction and mental health, as Mr Nadella from Microsoft has also pointed out.

As with most things, the right balance is probably somewhere in the middle. However, what is becoming increasingly clear is that technology is only likely to be more important, more widely used, and more essential to our daily lives. That bodes well for investors who have focused on this space.