Prosperity in a Pandemic – Short Sighted or a Barometer of Future Trends?

Our Managing Director James shares his thoughts.

A minority of companies have substantially added to their equity value this year despite the human and economic devastation caused by the coronavirus pandemic. Our role as a marketing agency is not only to support our clients plans today, it’s also to support help our customers to create marketing strategies that anticipate, predict and embrace future trends. Unfortunately, most of us don’t have a crystal ball, but what we do have is the ability to carefully analyse consumer research, and of course, there’s always the old skill of using ’the force’ to sense the moment and feel our way out of the darkness and into the future. Sometimes you cannot rely solely on an algorithm to gauge your customers’ needs, wants or desires, and as history has proven conclusively that people’s frustrations, joy, hope and anger can easily change the psyche of an entire Nation virtually overnight.

We can already see a new social trend emerging with the rise of TikTok, showcasing just how ‘generation Z’ are embracing the new normal and making the best of their opportunities. Talking of future opportunities there are a number of questions that we should consider in order to help us predict future trends.

Which companies have excelled so far through this pandemic?

Starting with the first question the sector to experience the highest market cap added so far in 2020 is (not surprisingly) the Information Technology. Microsoft $269.9bn leads the pack closely followed by Apple $219.1bn. Shopify, zoom video, PayPal, Adobe and NVidia all show significant net market capital gain- but why? While each individual company has a slightly different story, common themes include a sector that has been ready and able to provide critical services for a large number of people working remotely. In the case of Microsoft, the Teams app quickly became a way of workers keeping in touch, and the Azure cloud platform has become critical for many companies. Microsoft even benefited from people spending more personal time online as record 90 million players tuned in to the Xbox live gaming service in April. In the case of Apple, even though the majority of their 500 stores were forced to close it still managed to release the new iPhone, iMac and iBook air models, thus encouraging even more ‘time rich’ customers into wearables and upgraded services whilst working from home.

Closely following the Information Technology sector came the ‘Consumer Discretionary’ sector, with Amazon increasing its net market cap gain by $401bn. Despite Amazon initially shutting its warehouse to non-essential products, the accelerated shift to online shopping and increased reliance on the cloud computer business in the remote work scenario drove Amazon’s stock to record highs. Also, in this category is Tesla which despite the fleets of self-driving robo taxis being some time off making their mark on the world, Tesla as a brand has still been riding at an unbelievably high level through most of this year. The ‘Home Depot’ in the USA also added $31bn to its empire as growth accelerated to 22% (year-on- year) as most of the stock that the company sells provides vital and essential consumables such as water heaters, refrigerators, and electrical gear. Americans like the Brits have also upgraded their living spaces, buying more furniture and undertaking more DIY projects than ever during lockdown.

Healthcare is another sector that has done remarkably well so far in 2020, with obvious winners including companies that have been tasked with developing vaccines for Coronavirus. Chugai, the Japanese unit of Roche, and producer of the rheumatoid arthritis drug ‘Actemra’ have been trialling Actemra in the US and Japan as a potential treatment for very ill coronavirus patients. Including sales of the haemophilia drug Hemlibra Chungs profits rose to the level sufficient to make it arguably Japans most valuable drugs manufacturer. Lesser known Mederna (accumulating $20.1bn market cap added) is the first US pharmaceutical company to get a potential coronavirus vaccine to human trial, just a mind blowing forty-two days after receiving the genetic sequence of the virus.

Surprisingly, when times are hard it’s not just essentials such as toilet rolls that get a massive surge in demand as luxury and discretionary goods can also expense a surge in demand during volatile times. A good example of this is the fact that the vast number of people working from home led to a jump in online sales of over 60.5% for high end fitness brand Lululemon during the first quarter. A demand clearly created by formal business attire being replaced by expensive yoga pants as people tuned in to online fitness classes.

Personally, I’ve had a few bad experiences whilst drinking Moutai and entertaining clients, but amazingly the producer Kweichow Moutai has added a ‘staggering’ (no pun intended) market cap of $35.5bn in the first quarter of 2020. The reason for this is simple; in 2019 a shortage led to the decision to increase production by 30%, but in the same period China’s rich (the main customer) more than doubled over the same period. Once the Chinese economy reopened this spirit often used to cement (or should I say lube) business deals experienced a very significant boom.  Other sectors in 2020 that are showing vast levels of market added include; Communications Services (Netflix, Tencent, Facebook, T-Mobile, Alphabet), Materials (Newmont), Industrials (ASML), Utilities, Real Estate and Financials.

Which sectors will supply the next opportunities for growth and employment as we rapidly come out if lock down?

In terms which sectors provide the greatest opportunities, maybe the situation exists where several of our exceptionally performing companies and their sectors are simply in the right place, offering the right product and at the right time. But to use the analogy of being a bit lucky and/or opportunist is frankly too simple because without exception each and every one of those companies mentioned (as have the majority of players in their sectors) have responded to unforeseen and rapid consumer behavioural shifts with extremely agile and very focused strategies.

What we don’t know at this point however is how much consumer behaviours, business practices, cultures and communities will continue to embrace the recent changes that we have experienced during the pandemic, or indeed how things will revert back to the pre-pandemic ways of living. As we sit here today it could be that the sectors that we have reviewed will start to slow down as things return to normal and for example the older established traditional sectors including make a vibrant comeback. But it is hard to believe that many of our newly learned online habits from zoom meetings, working from home, house party ‘apps’ through to e-commerce are not here to stay.

Finally, we are very aware that our content has used examples of equity added $ as a measure of value success stories, but as we know money is only one, be it very blunt measure of value.

There are very serious and pressing considerations that could shape our lifestyles and values moving forward. Potentially such considerations may affect the future trends of business and commerce in a much more pronounced way and on a much more significant scale than our experiences of 2020 so far. If we consider the human races ability to adapt, radically change, and potentially prosper in the face of the recent adversity, then it is not unreasonable to assume that given the will (or in fact no other choice) humanity can finally face up to and take the measures necessary to save our environment, resolve inequalities, and start to finally address the obvious failings of globalisation. The recent fortunes of sectors provides a strong indicator to where short term opportunities lie, but our gut feeling is that longer-term priorities and subsequent trends are likely to be shaped by plans for a sustainable longer-term future.

*Data between Jan1st & June 17, 2020, Capital IQ

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