Never let a good crisis go to waste

All crises throw up opportunities and the current one is no different. This week we outline some of the bigger macro and thematic opportunities that we can exploit from recent events.

Many political leaders are using the current crisis as an opportunity to promote their agendas. Notable in this area would be the USA, which is aggressively pursuing its anti-China, America first agenda. Overdependence on extended supply chains, particularly in sensitive products such as healthcare or telecommunications, creates a previously unrecognised vulnerability. By blaming China for the crisis, the USA is able to accelerate further decoupling. This benefits the reshoring theme we already have, via those companies that provide industrial automation tools for the rebuilding of manufacturing capacity.

Another angle being followed is an acceleration of EU integration through the issuance of debt to finance the recovery programme. This programme is heavily laced with a sustainability agenda, possibly as a means of making it more palatable politically. A major barrier to the effective functioning of the Euro has been the non-existence of EU issued bonds and this is a major step in that direction, under the guise of a response to the crisis. We remain unconvinced of the Euro’s stability despite this move and believe a further Eurozone crisis is possible.

It is the green energy angle that is the theme we can pursue from this move. Substantial amounts of the money raised will go towards growing the green energy sector in Europe, a theme we currently play via both utilities and manufacturers of renewable energy equipment.

Other sectors are taking advantage of the crisis to further benefit their market positions. The online retail sector has seen a massive boost, as has the food delivery market. Naturally, this benefits the larger players, which are able to make the necessary investments at the expense of the independent smaller business, which must rely on third parties. As lockdowns end, we would expect much of the shift online to be sustained, permanently damaging the high street. In the leisure sector, larger players will have the capital and resources to influence any new regulations and implement required changes. Meanwhile, many smaller independent businesses may simply fold. The same is likely the case in retail, where bigger chains will be able to influence policy to their benefit. Generally, we have been avoiding consumer cyclicals until the outlook is less cloudy, but opportunities in post-crisis leisure and retail are likely to arise soon.

Another clear beneficiary will be healthcare. By putting themselves front and centre in politicians’ minds, the major healthcare providers have been able to influence policy like never before. Substantial investments are likely to be made to avoid further potential crises by building capacity. The goal of a vaccine or cure may never be reached, but a lot of money will be spent on the way and this will provide opportunities. We maintain a significant position across the healthcare space and this long-term trend is likely to accelerate in the post-crisis world.

In summary, it seems that a good number of our existing macro and thematic trends have been given a heavy push during the crisis. In some cases, this is simply fortuitous bringing forward changes which were underway already. In others it is a result of governmental action to advance geopolitical agendas. Either way as pragmatists we are happy to benefit.



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