Financial markets have staged a remarkable recovery since the depths of the sell-off a month ago. This is in no small part due to the actions of central banks and governments who have steadfastly undertaken market intervention in order to reduce market volatility, underpinning financial assets.
Whilst it seems inevitable that the world economy will enter a period of recession, the level of intervention should make for a quicker recovery.
The market over the past few weeks has taken a positive cue from this and is focusing on the economic rebound. It may be that the recent rally has also been partly driven by a fear of “missing out” on the lower market prices.
What seems beyond doubt is that the post-pandemic world will be quite different from pre-crisis, as suggested below.
A more nationalistic approach to supply chain and procurement was starting to emerge before COVID-19.
The post-pandemic reality of tighter border controls and social-distancing will have a negative impact on globalisation.
This may lead to higher prices, but will encourage the use of technology and innovation to reduce costs per unit.
Social-distancing has increased the realisation that face-to-face connections are not always crucial. Remote-working, online education, tele-medicine, Zoom-socialisation, will all become more normalised. This should play into the hands of companies with a focus on cloud computing products, e-commerce and cyber security.
Retailers who have a robust online presence should really benefit over those who do not. Bulk providers may increasingly bypass wholesalers/retailers and go direct to the consumer, who will also start buying in bulk. Warehousing, logistics, freight and trucking should all be sectors that benefit, should this trend play-out.
Mergers & Acquisitions
Cash is king in this environment and those companies with strong balance sheets, low debt and access to cash will be in a good position to buy out their distressed competitors. Investors will need to understand who are likely to be the winners – and sadly – those who are likely to be the losers.
Source: Forsyth Barr Global Round-up, 16 April 2020. This column is general in nature and is not personalised investment advice. This column has been prepared in good faith based on information obtained from sources believed to be reliable and accurate. Disclosure Statements for Forsyth Barr Authorised Financial Advisers are available on request and free of charge.