Pandemic: the game-changer

After a year of twists and turns, 2020 is ending in the same funny old way it started.  

In early November, in the space of barely a few days, two major events – Joe Biden’s victory in the US presidential campaign and the discovery of anti-Covid vaccines (with, going by the clinical trials, a very high efficacy rate) –  are bringing new perspectives to our world and our economy.

Markets were quick to hail these two announcements. Of course, although the vaccines herald a  form of normalisation within a given time horizon, the pandemic will leave deep scars, some already visible,  others bound to spring up in the long run.

Let’s take a quick look at the short-term consequences, over which a lot of ink has already been spilled, and covering changes not only to our working and consumption habits, of course, but also in the way in which we perceive health, sustainability and the environment.

These new habits have reinforced some highly prevalent trends, such as the development of connectivity, management and data security solutions, as well as online services, and have reiterated, to those whose attention it might have escaped, the pressing need to protect our health, our quality of life and our planet. No surprise, therefore, that firms developing solutions in these areas posted a much better 1H, outperforming, in fact, over the whole of the year.

Beyond these immediate observations and the inevitable market rotations linked to specific events that are likely to occur over the next few months, other, far-reaching changes are underway that will impact society and business models over the next 5-to-10 years.

At sovereign level, first of all, the limits of the indisputably necessary central bank monetary policies are becoming clearer with each passing day. New supportive measures for the economy will only be implementable by means of further fiscal intervention, which will require, for the first time in a long time, governmental intervention in the economy … but not just that. Indeed, governments are being asked to involve themselves in other aspects of our daily lives; for a healthier, safer planet, as a major vector of change for the better, and to manage what is, oddly enough, being referred to as a “return to the new normal”.

Geopolitics, too, has a new face, with China now off the leash and revelling in its status as the new leading global economic powerhouse and in its exiting the pandemic in more radical fashion than elsewhere on the planet. Cathay will henceforth have to deal with a US reconnected with its age-old allies and more fully engaged in  international and climate-related business initiatives.

This return of the US to the family of nations will not prevent a degree of de-globalisation. Many countries have experienced this crisis as a serious reminder of the need for available strategic reserves, and to win themselves some degree of autonomous control over health-related or essential goods and services.

To this end, individual States will not wait until the next crisis before reorganising. Certain responses or failures to respond are, these days, frowned upon by the public. The operative word here henceforth is: anticipation … of the challenges and crises to come, with tried-and-tested systems for detecting, monitoring and managing the major domestic and international challenges.

Climate is shortly going to be our primary focus. Governments, lawmakers, central banks, corporates – and, of course, the citizen body – are implementing various steps and actions to counter this, the Next Big Threat to the race.

Climate denial is no longer an option, and the related measures undertaken are often a means of appreciating the quality of a policy, a strategy or a project.

Europe has, here, a card up its sleeve, as the region could assume (already-recognised) leadership in the areas of environmental protection, the fight against global warming, and the circular economy, while rectifying its main decades-long weakness: its dependence on energy and raw materials provided by powers or countries whose vision and values it does not share.

Businesses, too, can draw lessons from this pandemic.

Digitisation, a mega-trend identified well before the crisis, is now rapidly shifting through the gears. Only the fittest will survive, as e-working and e-shopping become the new normal, and indeed are seen as such by clients and collaborators alike.

Process robotisation and optimisation represent no mean challenge for firms keen to remain more agile than the competition. They’re also a challenge to governments, as it’s a trend that could accentuate certain inequalities; the Fed, in respect of this very topic, has made the fight against inequality one of its core strategic objectives.

Sustainability – as governments (see above) have learned – will create opportunities for the most adaptable businesses and  – better still – for companies proposing climate and environmental solutions. This is bound to be one of the most powerful mega-trends of the foreseeable future.

It is on this hopeful note that I wish you a very happy 2021. A year of rebirth, a healthier year, with an improved quality of life and – at long last! – of living normally together (again).

Vincent Hamelink, CFA
Chief Investment Officer