The COVID-19 crisis affected all asset classes, and the global stocks market has not been spared. Starting from April 17, the MSCI All Countries Index was down 17% from its peak in mid-February. Uncertainty continues to overshadow the outlook.
In the long term, the performance of the stock markets depends on the profits made and expected, which is closely linked to economic growth. Compared to what was initially predicted, Aviva Investors anticipates that the global activity will decline by 8 to 14% in the first half of 2020 due to the crisis.
But the damage is not evenly distributed, and some sectors are more resilient than others. Market dislocations have created opportunities for sophisticated investors capable of taking a long-term view.
Stock Markets That Are Curving Downroad Due to Pandemic
The stock market is currently doing an excellent job of sorting out stable companies from those that are more fragile and identifying sectors whose revenues and industries will suffer from this recession.
No recession is like any other. In this period, stock values of travel and leisure (airlines, hotels, casinos, cruise operators, and organization of events) were severely affected.
In addition to the overproduction of shale oil occurring in a context of crisis, the oil market now has a demand problem, because fewer trips mean less energy consumption.
The stock market is also begging to focus on the implications of supply chains. While restaurants are direct victims of the crisis, their suppliers are too. Lamb Weston that supplies potatoes to McDonald and other fast-food chains, as well as Kerry Group, which products flavoring and culinary ingredients are among the companies that have also been weakened.
Certain sectors that would usually behave well during a recession have been penalized by the specific measures of the confinement imposed by COVID-19. The demand for tobacco remains solid, but the closure of pubs and bars has disrupted alcohol consumption.
Sectors That Have Proven to Be Resilient
Investors should examine the dynamics of each sector. For example, the stocks of biotechnology companies are in growth, which will surely be the trend in the future. The stocks of Genedrive, UK biotech company whose shares achieved an incredible 280% increase in price on the London Stock Exchange one day at the end of March. It happened when the company announced they are about to produce coronavirus tests.
Also, the stock value of French diagnostic company Novacyt had continued to grow when the company started producing tests for Asian and US hospitals.
High tech companies have outperformed, especially cloud solutions that can rely on recurring revenues.
Data Storage industry is expected to grow from the rapid shift to work from home across the world. Since many workers have been instructed to work remotely, it has become critical for businesses to keep the normal working process.
Some aspects of the retail sector seem to be more resilient during this crisis, such as the video game industry, which is expected to take advantage of greater consumer demand since quarantine to force people to stay at home. Also, domestic appliance retailers are also likely to benefit from big demand for computer monitors, freezers, televisions, etc.
The COVID-19 pandemic is short-lived but can be brutal, especially for specific sectors. Yet here we are, insure if the second wave of the pandemic crisis will hit again. One thing is clear – investors must find ways to deal with the uncertainty. One of the solutions could be a diversified investment, which can be useful to protect oneself against the unknown.