What to expect after the unexpected?

2019 was a year in which markets were unstable but largely positive, leading – in part – to cautiously benign prospects for 2020. Fast-forward a few weeks and the emergence of COVID-19, an unforeseeable entity, has shaken politics, markets and societies, and in turn the prospects for the year ahead. Pessimism has replaced cautious optimism, but that doesn’t mean investment opportunities can’t be found.

Even before the Coronavirus outbreak, the global economy was experiencing significant uncertainty. Political instability, geopolitical tensions and conflicting monetary policies continuously impact our interconnected society. Factors in constant transformation, like climate change and technological innovation, make a durable balance hard to achieve. And, as always, markets face the presence and threat of volatility. Looking at 2020, commentators had their specific concerns – about Brexit, protectionism, the US/China trade war – but overall tended to forecast modest growth and low inflation in a low-interest environment, and continued quantitative easing (QE) in the Eurozone.

The impact of COVID-19, upset such predictions. Worldwide, consumers are reluctant about – or forbidden from – travelling, shopping and attending restaurants, gyms, cinemas, pubs. Businesses too are cautious about making investments, all of which is creating a significant shock to global demand and supply.

Calculating the full impact of such a massive, ongoing catalyst is not possible yet, but we can already analyse some of its profound effects on our interconnected society.

One of the spheres most intensely affected by the Coronavirus outbreak is geopolitics. Before the virus hit, nationalistic sentiments around the world were already challenging globalist visions on how we should move, feel, and trade. Now, in the urgency of responding to the outbreak, countries are building new barriers that restrict travel to and from certain countries. But will these barriers last longer than the outbreak itself?

China is undoubtedly suffering a significant PR and economic blow to its geopolitical and financial rise, which seemed unstoppable just a few months ago. The economic shock – although no fault of his own – could also prove a considerable barrier to Trump’s re-election, with implications for both US and international policies. And, in a post-Brexit Europe, the outbreak might serve as an occasion to ponder over the economic, political and social balances of the Union.

Focussing on the economic impact of COVID-19, we can naturally expect some sectors to be hit more than others. Transportation will be radically affected, both in the short and the long term. People are currently avoiding unnecessary movements, not just across different regions but inside the very same city. For the future, it’s reasonable to expect some resistance to resuming the old habits, with significant blows to cruises and low-cost airlines. In general, businesses and individuals will probably reassess their air travel needs, already challenged by environmentalist “flight shame”.

The hospitality sector will be struck worldwide, as well as retail, sport, entertainment and cultural venues. Commodity prices will most likely be affected for a long time and, while such outcome might favour consumers, it will also have severe consequences and force players out of business.

As daily habits are reshaped, some companies and industries will prosper.. The need to work from home is boosting the demand for videoconferencing and other related services. And, as social distancing keeps people physically apart, technology’s role will play a bigger than ever part in their personal life too, helping them find connection in the digital world. Many businesses, such as theatres, museums and gyms, are moving their offering online, while streaming services record a popularity peak.

Another positively impacted sector will be the pharmaceutical and healthcare one. The urgency to find a vaccine is stimulating heavier funding for research, while the outbreak is highlighting the need to improve public healthcare provisions and consider new supporting policies, for the short and the long term.

Despite what seems to be the most unstable economic situation since 2008, investment opportunities still abound. Technology and healthcare companies, for instance, look set to benefit from changes in our patterns of working and a renewed focus on healthcare, respectively. More opportunities will likely arise over the coming weeks and months; identifying them at attractive prices will not be easy, but a broader perspective on issues facing society and the global economy will help.