As countries around the world slowly begin to ease lockdown measures, what impact will this have on the global economy and the appeal of different investment sectors throughout 2020?
With the global economy effectively in hibernation, the mounting impact of rising unemployment, diminished spending and lower manufacturing activity is beginning to be felt by governments around the world.
A sense of increasing urgency is now sweeping over many nations. Governments are now realising that they must restart their economies or potentially face even greater long-term consequences arising from the fallout of COVID-19.
However, despite all the best intentions, we believe many nations will struggle to find an immediate economic uplift that they may have come to expect.
We maintain the view that in the near-term, the new economic ‘normal’ will be a shadow of itself. This is likely to weigh on the broader global economy and dampen the prospects of a ‘V-shape’ recovery.
It is our view that any sense of economic ‘normality’ may take at least 18 to 24 months to play out. However, notwithstanding macroeconomic challenges, we believe some areas of the economy will fare better than others.
In fact, we strongly believe that changes to the composition of the near-term economy will create numerous opportunities for investors to take advantage of.
Where to invest in 2020?
One of the key areas we see benefitting in the near-term and beyond is the technology sector.
We have previously vocalised our bullish outlook towards payments processing companies, with consumers likely to favour online shopping and avoid cash transactions in favour of digital payment methods. This is a tailwind that we see benefitting the likes of Visa (V), Mastercard (MA), PayPal (PYPL), as well as local BNPL juggernaut Afterpay (APT).
Companies that make it easier to work or conduct business remotely are among those we think will be pivotal to an increasing trend of working from home, even after the pandemic subsides. ServiceNow (NOW) and Atlassian (TEAM) are two of our long-term bullish picks in this space, but we also like others such as Slack Technologies (WORK) and Zoom Video Communications (ZM).
As we believe people will be more likely to spend a greater proportion of their free time at home, we also see a lift in data consumption. Local data centre operator NEXTDC (NXT) is positioned to benefit from this, as is Telstra (TLS) courtesy of the 5G rollout. Meanwhile, international streaming service providers such as Netflix (NFLX) and Roku (ROKU) also have exposure to subscriber growth they can leverage over the long-term.
Looking slightly further out, infrastructure is a segment that we view as likely to be in the sights of governments around the world to kick-start their economies. Transurban (TCL) is one business looking to buy or fund new toll roads, however, broader construction activity could have positive implications for companies such as Lend Lease (LLC) and Cimic Group (CIM).
Consumer staples is another area where we think investors could see upside if seeking defensive exposure. Supermarket operators like Woolworths (WOW), Coles (COL) and Costco (COST) have withstood the market volatility well.
While sales are expected to moderate after recent panic buying, these companies would likely see an uplift in growth if another wave of COVID cases spread across the world. Furthermore, if more consumers dine in and avoid restaurants, the new ‘normal’ may see consumers cook more food at home.