Investing in a post-COVID-19 World

Due to the recent COVID-19 outbreak, every facet of the economy, including investing, has been affected. While it might be longer for countries who were slower to control the spread, the trend is moving in the right direction, and the outlook is positive. 

Newer investment methods and thinking have gained popularity since the pandemic. This guide will show you how investors created new methods to survive in a post-COVID-19 world. 

How COVID-19 Affects Production

Before we can think about the investor's perspective, we have to discuss the economic repercussions of COVID-19. After it's origins in late 2019, we can see how COVID-19 has affected global production rates. 

Due to COVID-19, production in service and industrial industries have slowed down. For instance, Chinese production has been affected by the shutdown occurring in the Hubei province. Some countries are starting to notice a direct impact as their government and authorities start to place similar measures. 

China’s slowdown on production has also affected global exports. According to the World Bank, China's major imports are Japan, Korea, and other Asian countries. Thus, even if COVID-19 has no new outbreaks, these countries are expected to experience slow growth within the first half of 2020. 

Market and Supply Chain Disruption

Manufacturing firms across the globe relied on imports from China and other countries affected by the disease. Also, many companies used Sales in China as a means to achieve their goals. Transportation restrictions and the reduction of economic activity - will impact the profitability and production of certain global companies. 

For companies that need intermediate goods from affected regions, the severity of the impact will depend on how quickly the outbreak fades. Small firms are less likely to survive due to the economic disruption. In addition, businesses tied to tourism and travel are facing losses that might not be recoverable. 

Reduced Company Earnings

We are expecting to see a downside pressure on company earnings due to a disinflationary environment and the recession. Because of this, market volatility is inevitable. For instance, the markets might pull back again, and we can expect that there's more volatility in the pipeline, so investors will need to have their portfolios positioned for that. 

The major concern is that South Africa will see a depression instead of a recession. The country has already entered its lockdown phase during a period of economic turmoil. On top of that, we've noticed the structural issues and hope that there will be a political will to address the economic issues that occurred during the COVID-19 crisis. 

While the gap between population growth and economic growth widens, and a lowered growth rate, we can expect reduced company earnings, social unrest, and rising unemployment. Economic support is vital during this time, and creating the groundwork for a more enhanced economy will lead to future success in the country. 


There Will Be Winners and Losers

As the pandemic continues, we expect the digital economies to emerging as COVID-19 disrupts habits made by the industrial generation, such as driving to work. 

Many online-based businesses, communities, etc, will be the winners and will be looked at for opportunities for equity investments. However, there will be losers as airlines, and terrestrial industries will be adversely affected by the pandemic. 

This means that businesses that are able to shift to digital methods will find a better economic incentive than to continue with brick-and-mortar practices. To win in a post-COVID-19 world, investors are starting to take more digital investment opportunities since they offer more liquidity. 



What Does This Mean for Investors?

For investors, the pandemic has affected them negatively in the short term. COVID-19 has created a state of uncertainty in the market, as investors are switching from traditional to digital investment options. 


Virus outbreaks have a negative effect within the first 1-3 months. After a 6 month time period, investors are able to rebound from the loss and start to create subsequent returns. 

For example, SARS (8.7%) and Avian flu (0.00%) have experienced slow returns within the first month. By the 3rd month, you can see the rates increase (SARS - 17.9% and Avian Flu - 13.9%). Because of this, we can see that investors from previous outbreaks tend to thrive in the long term. 

At this stage,  we’ll have to assume that the COVID-19 pandemic will follow the same pattern as previous epidemics, and investors shouldn’t worry too much. However, there is no “safe” approach either. For instance, exiting out of stock options in exchange for cash comes with its own risk. Investors would miss out on a potential rebound if the virus is quickly contained while also crystalizing any losses due to sentiment. 

The Rise of ESG Investing

ESG (Environmental, Social, Governmental) Investing uses a set of criteria to evaluate the value of a company. Environmental judges how well the company performs in natural. Social judges how well a company manages relationships with its customers, suppliers, employees, and communities. Governance evaluates how well a company deals with executive pay, internal controls, audits, shareholder rights, and leadership. 

Before the Coronavirus pandemic, the idea that "companies' main focus shouldn't be involved in deepening their shareholder's pockets" - started to increase in popularity. This idea has been accelerated in this change of thinking, as investors are rewarding companies who responded to the outbreak by improving their long-term goals rather than solely prioritizing on short term investments. 

For investors, a post-COVID-19 world would mean that ESG principles will be applied before investing. We can already see an increased interest in ESG/Sustainability investing. 

Investors have shown interest in active sustainable funds in Q4 2019. That would then shift towards passive sustainable funds in Q1 2020. How come? Because the current pandemic has lead to a different way of thinking, and investors are evaluating which companies have their interest in the long run. 

Conclusion

What is the future of investing in a post-pandemic society? Investors are starting to change from a profit-based to a more ethics-based approach. Also, digital investments are prioritized, as investors look for more passive sustainable funds over tangible assets. As things are expected to change, we can only hope that the investing market can adapt to survive in a post-COVID-19 world. 


Sources:

  1. https://www.iol.co.za/business-report/economy/investing-in-a-post-covid-19-world-47332597

  2. https://www.forbes.com/sites/petertaylor/2020/04/23/real-estate-development-will-never-look-the-same-post-covid-19-realtors-and-architects-should-pay-attention/#2521957c6f2a

  3. https://www.zdnet.com/article/the-future-of-the-technology-industry-after-covid-19/

  4. https://www2.deloitte.com/us/en/insights/economy/covid-19/economic-impact-covid-19.html

  5. https://www.cnbc.com/2020/06/07/sustainable-investing-is-set-to-surge-in-the-wake-of-the-coronavirus-pandemic.html

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