Approximately half of humanity has been or is still under some degree of lockdown, and for those who can access it, technology has become an even larger necessity - from online shopping to virtual workplaces and video conferences. Estimates of internet usage are up 40% since the start of the year across major economies, especially in sectors including retail, education, healthcare, leisure, and entertainment - Google's top three searches in the US through 12 April were Facebook, YouTube, and Amazon.
In the meantime, businesses have rapidly adopted and rolled out cloud-based services to facilitate continued operations: One large U.S. remote-working service provider reported a 22-fold increase in the use of its platform in China through March of this year, while downloads of Zoom's online video conferencing service jumped 141% in March versus February of this year. This crisis has prompted and accelerated the integration of technology into many of our daily lives.
Disruptors versus disrupted
Some economic sectors are likely to benefit more than others from changing consumer behavior and shifting preferences - let's call them "disruptors." On the other hand, certain areas may face greater challenges as a result of the changes, making them more "disrupted." The swing factor between the two sides may well be each company, sector, or region's capacity and flexibility to adapt and evolve to changing behaviors and requirements. The distinction between the two groups will become an increasingly relevant concept for investors.
Recent market dynamics might provide an indication of where the disruption is found, as seen on the table below.
|
Winners and losers in 2020: what the market says |
YTD Return |
|
MSCI World Index (absolute) |
-12.3% |
|
MSCI World Healthcare vs. MSCI World |
11.3% |
|
MSCI World Info Tech vs. MSCI World |
11.0% |
|
MSCI World Comm. Services vs. MSCI World |
5.0% |
|
MSCI World Cons. Staples vs. MSCI World |
4.4% |
|
MSCI World Cons. Discretionary vs. MSCI World |
3.6% |
|
MSCI World Utilities vs. MSCI World |
1.4% |
|
MSCI World Materials vs. MSCI World |
-3.9% |
|
MSCI World Real Estate vs. MSCI World |
-4.2% |
|
MSCI World Industrials vs. MSCI World |
-7.9% |
|
MSCI World Financials vs. MSCI World |
-14.4% |
|
MSCI World Energy vs. MSCI World |
-23.4% |
Source: PIMCO and Bloomberg as of 30 April 2020.
The signs could not be clearer: Demand for healthcare and technology seems not only immune to the crisis, but also to be benefiting from it, while traditional manufacturers, financial institutions, and energy have suffered the most. A technology-led world, combined with reduced global trade, may need less oil and more automation, while banks' business models may be challenged with the protracted level of low interest rates.
The financial, economic, and health recovery from the pandemic is, unfortunately, unlikely to be smooth or easy. As such, investors should not underestimate that the way to achieve their financial goals might be markedly different now, as the "disruptors" take an ever-larger share of the pie from those "disrupted." The ability to distinguish between both is becoming crucial.
Geraldine Sundstrom (pictured) is a managing director at PIMCO focusing on asset allocation strategies and lead portfolio manager on the PIMCO Dynamic Multi-Asset Fund.
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