As winter approaches in the virus-ravaged northern hemisphere – and Australia emerges from its successful lockdown – the stakes have never been higher. “Double dip” recessions can’t be ruled out in some of the worst-hit areas, while domestic stress is on the horizon with the unwinding of fiscal supports like JobSeeker and JobKeeper.
But Michelle Lopez, Aberdeen Standard Investment’s head of Australian equities, is looking for the opportunities behind the challenges.
“We expect to see the rotation from growth to value continue (and the re-rate that brings), which in itself present opportunities for us as long term investors to pick up some high quality stocks on the cheap(er) side,” Ms Lopez told InvestorDaily.
“The COVID-19 dislocation has accelerated trends already in play and while many companies benefitted over 2020 because of this, there are ones that will carry on doing so. If there is an indiscriminate sell off then it presents us with an opportunity to buy those long term compounders.”
Ms Lopez’s COVID winners have been “digitally native” consumer-facing companies that have benefited from the structural shift to online rather than COVID-fuelled cyclical boost where consumers had few other avenues for spending. Also on her list are a slew of tech and healthcare companies, chief among which is Fisher & Paykel, whose oxygen therapy devices have come to form one of the first-line defences against COVID-19. Ms Lopez named the company as her standout stock for 2020 after it upgraded its guidance multiple times amid a surge in global hospitalisation rates.
Then there are the sectors that haven’t fared so well. Leisure travel will likely make a recovery, but business travel – although unlikely to disappear completely – “will look different”. Office and retail real estate will be severely structurally challenged, and banks will face more pressure than ever to redesign their physical footprint.
“We should recognise that the challenges of the post-COVID political, economic and market environment are also an enormous opportunity because they are likely to be accompanied by significant structural changes across geographies, sectors and securities. Volatility and dispersion will be high, creating opportunities for active managers to generate positive alpha,” Ms Lopez said, adding that ASI expects 2021 to be a “year of re-opening and recovery”.
However, other challenges loom. One lesser known impact of a virus that has killed more than a million people is a growing dependence on the quality of government interventions amidst a burgeoning climate crisis.
“The full benefits of the digital revolution won’t be captured unless policy and regulation diffuses the potential gains to more firms and individuals…Meanwhile, our fragmented politics can’t be put back together unless policymakers address the myriad inequalities plaguing our societies. The old adage that one should never waste a crisis has rarely been more apt,” she said.
