The economic fallout relating to the worldwide COVID-19 pandemic has raised plenty of concerning questions amongst economic circles. This article will attempt to pick apart trends, their reasons and most importantly how the stock-markets are differing now compared to
Early in May, investor Warren Buffett cleared out his entire cache of stocks in US airlines, predicting noteworthy losses and stating that “the world has changed”. He isn’t wrong. Pre-pandemic the number of air passengers had been growing by roughly 5 percent year on year. Despite this, the legendary investor backed out under the expectation that ‘business as usual’ would not be the norm going forward. Is this uncertainty in the stock market from high profile investors a signifier for the average investor?
Certainly investors and analysts alike will not be on the same wavelength as Buffett. Governments will aid airlines, such important infrastructure can’t and shouldn’t be allowed to fail. This has been proven repeatedly in every financial crisis since airlines became a part of our everyday life. The short term price-fluctuations may well be devastating for now – but it seems investors are broadening their horizons and considering long-term investment.
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The difference in approach to the pandemic will come down to individual economist’s but the big question is who will be proven correct? We’re in a grey area where the gamble will make or break people; everything since the beginning of March until now and onwards will be guesswork. We’re living in a unique time. Not because we haven’t had pandemics or financial crises before, but because we as a world are advancing at such a rate that this current climate has taken a big departure from anything we’ve experienced in the past. Jeremy Cheah, an associate professor of cryptofinance at Nottingham Business School thinks that “Until and unless there is massive restructuring in the airlines industry, it might make a lot of sense to give airline stocks a miss,” he says. “However, the decline is just the tip of the iceberg and symptomatic of what is happening in the wider economy.” Perhaps, according to Cheah, Buffett has made the right call.
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The broader story of COVID-19 is that it has impacted almost every industry in our society. It may well be foolhardy to have a portfolio full of stocks in travel and hospitality but if we look beyond the surface, we can see these industries were not in decline, so in theory should eventually bounce back with a bit more vigour than, for example, the retail sector. This resurgence will depend almost entirely on when a vaccine is produced and administered. The fact remains that COVID-19 is still worsening around the world and that most of the population are still susceptible to infection, despite being 6 months into the pandemic so now would not be the time to take the foot off the pedal for a cure. This brings us to another major question of timescale. If so much of the economy is going to rely on a vaccine bringing back some degree of normality, there is little certainty when investing in stocks what the window for a return will be. The desired ‘V’ shaped recovery may simply not be a reality until consumers are willing or even able to spend, travel and work for their respective society.
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“At least some of the changes in consumer needs and behaviour seen during the pandemic will carry over,” says Lutfey Siddiqi, visiting professor at London School of Economics’. The necessity for social distancing has brought about a change in commercial and general consumer spend and has found itself leaning towards technological advancements to further the ability for communication. This could see one outcome favour the sectors and business’ that have adapted quickly and shown resilience to the pandemic. This suggests that simply cutting costs may not be enough to survive and having the equity within a business to adopt to a new way of life, in both the long and short-term, could see certain sectors rise from the ashes.
This is a strategy that may bring about a path forwards and hopefully upwards. If a company, or more broadly an industry, has been able to adapt and show a certain level of agility when navigating this new world it may garner favour with investors. It would be wise, in that case, to keep a close eye on who has made it through. Who has changed their operation to benefit and attract consumers, despite uncertainty in the market.