Covid-19 and its impact on global investment opportunities
Infrastructure investment expected to increase
The global pandemic crisis has thrown us into an unprecedented period for global equity markets.
We are going through an near-synchronised global shock to both supply and demand, leading to one of the most severe economic downturn in history, and certainly the most rapid recession we have seen in our lifetimes.
This has led to sharp downgrades in earnings expectations, and a significant rise in market volatility, with stockmarkets experiencing the fastest bear market since WWII in March, followed in the space of a month by the fastest bull market since 1974.
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As we look ahead and reflect on the potential shape of the world post-pandemic crisis, we are considering the impact on investment opportunity.
There is likely to be increased spending on infrastructure across regions, as a way to channel the sizeable fiscal stimuli announced.
High-speed railway infrastructure could be a beneficiary, as could Telecoms infrastructure via 5G network upgrades.
We believe there are some companies in the European industrials sector, such as Atlas Copco, that give investors exposure to these.
Healthcare infrastructure spend is also likely to increase, as a way for governments to be better prepared for the next pandemic - this will benefit both hospital spending, and homecare trends.
On a global equity basis, companies like Masimo or ResMed are likely to benefit directly or indirectly. Food safety and general hygiene standards are likely to go up, which may benefit companies working in this area, as Ecolab.
Finally, robotics and automation trends are likely to speed up, in order to make production lines more efficient, with companies like Dassault Systemes or Ansys being beneficiaries.
For some sectors globally, there are likely to be negative impacts. The future of transportation both in terms of air travel recovery; but also workday commutes, and workforce location, are such areas.
Specific sectors such as transport, leisure and real estate appear to be in the firing line, although it may take some time until the full extent of the downturn is properly factored in.
Waiting in the wings is also the prospect of higher taxes globally which could weigh on investor sentiment.
Zehrid Osmani is manager of the Legg Mason Martin Currie Global Long-Term Unconstrained fund
Bull Points
• Increased infrastructure spend opens opportunities for long term investors
• Acceleration in robotics and automation trends
Bear Points
• Tax rates could be going up in the mid-term which impacts valuations negatively
• Upside unclear as shape of recovery remains highly uncertain and markets have already recovered rapidly
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