What the Covid-19 Vaccine Means for Investors
Although Covid-19 has and will continue to, severely affect economic and financial markets around the world, Australia’s economy and investment markets have performed better than many countries. At the peak of the crisis, the Australian share market fell by almost 37%, but since then it has mostly recovered, and in some instances outperformed. Government stimulus protected jobs and businesses, and a plunge in interest rates and debt forbearance schemes headed off defaults.
Australia’s economy still has a way to go, although continuing containment of outbreaks, and consequent shutdowns, is an ongoing battle. It is difficult to predict where the investment market will go in the short term – more falls could occur as the market responds to current events. However 2021, looking bright with the prospect of global mass vaccination, might allow a return to a new normal by the end of 2021, and could see solid returns in the following sectors.
Investment Sectors to watch in 2021
Healthcare
The largest immunisation programme in history is underway, with countries across the globe at various stages of planning, approval and implementation. With that, new revenue generation could be seen in the healthcare sector.
For example, Equity analysts have projected vaccine makers such as Pfizer and Moderna will generate US$32 billion in COVID-19 vaccine revenue in 2021 alone. Companies working on supporting biotechnology or therapeutic drugs such as messenger RNA or Regeneron may open up whole new fields of medicine and treatments in other illnesses, such as cancer.
Logistics and domestic manufacturing might also see a rise, as distributing the vaccine will require enormous logistics effort. For example, some vaccines require well-below-freezing transport, so firms selling cooling technology will stand to benefit. Or an expansion of local companies producing protective equipment, drugs and devices such as ventilators, as Governments now recognise the importance of being able to manufacture crisis products domestically, rather than relying on international trade.
Inflation and Interest Rates
Inflation – which is currently around 1.4% in Australia – is expected to remain low, which means it will be in the Reserve Bank of Australia’s interests to keep interest rates low. Interest rates are predicted to remain at their current levels of around 0.10% for at least the next three years, which is good news for people with mortgages, and also for the economy, as people with home loans are one of the groups that spend the most and which have ongoing effects in many areas. For example, home renovations have surged during the last year and provide work to local trades, installers, product manufacturing, bank loans, council taxes and so on.
Low rates mean meagre returns from bank deposits and ultimately bonds but they make higher-yielding assets and shares like property and infrastructure more attractive to invest in.
Digital Acceleration
Self-isolation has dramatically accelerated the move to a digital and contactless world. All avenues, from businesses to schools, from workers to consumers have been forced to embrace new online procedures and platforms. Pressure has ramped up on traditional retailers and shopping centres to improve their online presence or be left behind.
A surge in IT tech stock facilitating online activities, from digital meetings to school curriculum to e-commerce has seen an excellent year in 2020, so much so that the B-word, bubble, has been frequently bandied about in market coverage. However messy antitrust litigations against Google and other tech giants could see tighter restrictions in the tech monopoly.
International Travel
Almost instantly, airlines, hotels, and cruise lines all experienced plummeting loss in revenue, share prices, and uncertainty in future retainment. With global vaccines now being rolled out, combined with pent-up demand for holidays and the availability of cash due to stay at home savings, could drive lucrative opportunities for the travel sector, and therefore investment opportunities.
Online travel hubs such as TripAdvisor, Expedia Group, Booking Holdings and Airbnb have weathered the storm better than most travel areas. Smaller travel startups may eye potential public listings in 2021 as a way to shore up their finances during the crisis, especially seeing the positive result of Airbnb going public in December 2020.
Already established in the digital arena, these tech hubs have the ability to be flexible and pivot to shifting demands, such as long-term stays, rural locations or short-distance unique accommodation close to home. These kinds of tech hubs don’t have as much exposure to business travel and did not have large assets like brick n mortar hotels, rather cost-cutting through staff employment and marketing.
However, airlines and hotels will continue to see a hit from the loss of business travel, as companies rethink the essentialness of sending their employees in person with the rise in online communication acceptance. Cruise liners are perhaps the least capable of withstanding a global pandemic as cruise experiences are built around cramped cabins, shared dining and close proximity to other travellers. However there are already signs they are adapting, and it seems people are already booking their next cruise.
In COnclusion
The World Health Organisation has observed that pandemics have become more common over the past 20 years due to the increased movement of people around the globe. Governments are expected to retain elevated healthcare spending and stronger longer-term healthcare expenditure trends. Even before COVID-19, the Organisation for Economic Co-operation and Development (OECD) was forecasting health expenditure would outpace GDP growth over the next 15 years in almost every OECD country.
In many areas, 2021 is looking bright with recovery, and investment markets could provide solid returns on the back of continuing economic recovery and low-interest rates, driven by government stimulus and mass vaccine rollout.
New Year Resolutions
A new year is an ideal time to check-in and review your finances. Please don’t hesitate to contact us if you have any questions in relation to your financial planning needs.