Coronavirus webinar: key themes for investors

Economic update

The growth rate in new coronavirus cases is now slowing. As a result, a number of European countries are starting to ease restrictions on citizens or making plans to do so.

Short-term activity indicators now clearly show the huge impact of the response to the pandemic on Western economies. Our base case remains that we will see a 3% contraction in global output this year, followed by a strong rebound next year.

The key risk to our outlook is that managing the pandemic requires additional lockdowns later this year and next.  

Looking ahead

Covid-19 could have a lasting impact on consumers and businesses for years to come. While some sectors are well suited to the changed environment, others could struggle.

Graham Harrington and Dominic Liversedge discussed some of the key themes shaping our thinking on potential stock market winners and losers. 

The retreat of globalization

The US-China trade conflict had already prompted many big companies to bring parts of their supply chain back home. We think the pandemic could accelerate this retreat of globalization.

However, “onshoring” can be costly. Nike is a good example of a company that has successfully relocated its supply chains in the past. The increased use of automation is an essential part of the process. 

Consumer outlook

Covid-19 is rapidly accelerating the rise of ecommerce at the expense of traditional retail. Amazon is a clear beneficiary.

More generally, the consumer staples sector looks relatively attractive in the current environment. With corporate debt levels high, and bond yields very low, companies with stable revenues and earnings will be in demand. 

Continued rise of technology

Online services have been a lifeline to consumers and businesses in lockdown, reminding us of technology’s increasingly essential role. We expect this trend to continue, benefiting a wide range of technology companies.

To give just one example, demand in the highly cyclical semiconductor sector had been under pressure in recent years. However, semiconductor manufacturers are now reporting healthy sales as companies are forced to meet unprecedented demand for bandwidth.

Shares of the biggest US technology companies - including Microsoft, Apple, Amazon, Google and Facebook - have outperformed global markets in recent months. We expect  their outperformance to continue as the strong get stronger in the post-Covid world.  

If you were unable to join this live webinar but would have liked to listen in and pose your own questions, more will be held in coming weeks. Please look out for invitations from your usual contact.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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