Coronavirus: Another nail in the coffin for bricks-and-mortar retailers
We are concerned that the coronavirus could prove to be a headwind to short-term economic growth. At the moment, it is not clear whether the crisis will last a few months or longer.
The accepted wisdom is that a vaccine is 16 to 18 months away but we could see the first batches of a Covid-19 vaccine available for emergency use authorisation in early 2021.
Abbott Laboratories' point of care test can detect Covid-19 in just five minutes. It is too early to judge the likely economic impact of the coronavirus but, as the disease seems likely to persist into the summer, it will be damaging.
The global stocks that have been hardest hit in the sell-off are those with long, complex and thin supply chains, and those with high levels of indebtedness.
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Perhaps intuitively, 'stay at home' plays such as Ocado and Netflix have held up well during the sell-off, both firms that we hold in the portfolio due to their application of artificial intelligence in their respective business models.
China has also held up relatively well recently as new cases of the virus seem to be easing and much of the bad news in relation to the coronavirus was already priced into Chinese equities in any case.
What we are concerned about next, however, is industrial cyclicality. We sold our entire position in oil stock Eni in early March.
This is a good company and its use of AI means that it has a level of operational consistency that few other oil majors can match, but we simply could not ignore that Italy is in the eye of the storm as far as the coronavirus is concerned and that global demand for oil is weakening.
It is obvious to us is that consumers around the world will be forced to change their behaviour as a result of the crisis, and those, for example, who are not familiar with online shopping or banking will need to become so quickly.
Our analysis shows that once consumers have changed their behaviour they don't tend to revert to old habits, so the coronavirus could be another nail in the coffin of traditional bricks and mortar retailers.
Chris Ford is co-manager of the Smith & Williamson Artificial Intelligence fund
Bull points
• AI companies such as Ocado are facilitating online shopping en masse
• 'Stay at home' stocks in a dominant position
Bear points
• Cyclically exposed names around the globe are at risk as downturn deepens
• Energy and materials face major risk as commodity demand tanks
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