Exploring The Markets That Could Recover Fastest Following COVID-19

The devastating impact of Coronavirus has left global stock markets reeling. Historic falls that prompted Australian PM Scott Morrison to draw parallels with the Great Depression have threatened countless businesses and led to record rises in global unemployment. 

While the year of 2020 will no-doubt evoke the still-fresh memories of 2008’s crash and subsequent recessions, it’s important to acknowledge how exceptional the circumstances are in the current economic climate. COVID-19 may not be the world’s first pandemic, but the disruption it’s caused to widespread economies is unprecedented. 

The nature of this kind of downturn means that making accurate predictions regarding when a recovery will occur and to what extent stocks will recapture their values can be extremely difficult, but there are some strong indications surrounding the specific markets that could rebound most effectively. 

Taking available evidence into account, here’s a deeper look into how investors could strategize their holdings in order to catch the fastest recovering markets.

Anticipating the Rebound

When a significant event shakes global markets over a prolonged period of time, investors typically look to catch the bottom of the shares they’re interested in. Logically, investing at the bottom of a bear market means that said investor stands to see the largest possible return on their portfolio. 

When something as uncommon as Coronavirus wreaks havoc on stocks, it makes the task of catching the bottom significantly more difficult. Markets can become extremely jittery and with thousands of businesses forecast to struggle with long-term cash flow issues as a result of COVID-19, there’s no guarantee that early recoveries won’t suffer further falls. 

Despite widespread uncertainty, we can find comfort emanating from East Asian markets. The performance of commodities such as coal and copper are indicating that China, the nation of COVID’s origin, is beginning to recover from the disruption caused by the emerging pandemic. 

Bloomberg reports that China has been around 90%-95% ‘back to work’ since the beginning of April, and its various markets are already showing signs of recovery, especially within the nation’s steel and construction industries as well as crude processing. 

Oil refineries along with coal-fired power plants are already back operating at similar rates to that in 2019. Elsewhere China’s metal stockpiles are falling are shrinking from extremely high levels. 

(Image: S&P Global) 

As one of the hardest-hit nations by Coronavirus, China’s rebounds will be heartening to industries across the world. 

(Image: S&P Global) 

The above chart shows that China’s power plants have begun to consume coal at a similar rate to the year prior, indicating that a return to familiarity can occur for many nations heavily affected by the virus in a matter of months. 

(Image: S&P Global) 

Finally, we can see that piled up inventories are showing signs of destocking. This can be particularly good news in combating the emerging oil crisis which has seen the value of the fuel turn negative due to stockpiles reaching capacity levels. 

Most significant, of course, is the fact that China has begun to emerge from the Coronavirus crisis with no daily deaths to report from the virus. Theirs is a story of collapse and recovery that should bring confidence to the rest of the world and its markets. If the Chinese recovery in production is to be followed elsewhere, we could expect some sustained growth in a range of markets. 

As nations battle to limit the number of infections, many industries have been forced to shut down. But when a return to ‘normality’ begins following the lifting of lockdowns and self-isolation guidelines, it’s fair to expect the pandemic to have affected the rate in which certain markets recover. With this in mind, let’s explore where the best value investments could lie: 

Technology

According to JP Morgan, recent international trading tensions will cause supply chains to get shorter. With China dominating production, and the fallout from Coronavirus may prompt companies to look closer to home when it comes to picking a stable supply chain. 

Mounting evidence suggests that tech firms are already embracing more diversity among their suppliers rather than bringing supply directly from their home countries. However, governments look set to put pressure on the private sector in delivering more domestic capacity - especially when bringing critical healthcare supplies into the equation. 

Tensions between the US and China could prompt some form of de-globalization, where China’s stronghold on trade could be tested as more companies look to operate in a more domestic manner. 

Supply chain issues mean that value investments in the aftermath of COVID will likely come from the emerging technologies that have aided businesses in keeping afloat online as more and more office doors have been forced to close. 

It’s clear that the Coronavirus lockdown has sped up a pre-existing transition from physical workplaces to more digital ones. Working from home has become a new standard across the world. The offline-to-online transition is likely to continue gathering pace even after the pandemic is over and we return to ‘normal life’. 

The ramifications of a life spent working remotely could be significant for city and country life, along with where workers plan to live. WFH could directly impact the world of real estate in the coming years, but prior to that, we’ll see the stock of innovative companies recover at a more comfortable pace than other industries. 

Some industries, on the other hand, are seeing big increases in interest and usage right now, during the pandemic. A number of companies, including Netflix and Zoom have exploded during the outbreak. 

For instance, Zoom, a video conferencing app, grew tremendously, increasing its usage from 10 million daily meeting participants in December to as high as 300 million in April.  

It’s no wonder why online businesses are thriving when you consider that according to Google Trends an interest for the search term “online business” grew from 75 to a peak 100 between the months of March and May.

Presumably, in light of the recent events, people are looking into the possibility of starting an online business - a logical explanation for a massive rise in interest. 

Subsequently, businesses that are linked with helping people start and manage online businesses, from website builders like Wix and domain registrars like NameCheap to website analytics services like Google Analytics and Finteza are supposedly seeing an uptick in usage. 

For instance, according to Google Trends, Wix have been seeing a massive increase in interest.

Fiverr, a freelancing platform, have been seeing a similar trend in interest. 

Consequently, it’s fair to assume that although online businesses are also negatively affected by the pandemic, some businesses, especially those that are interlinked with helping others establish themselves online seem to be in demand. 

Healthcare

Global healthcare has come under the spotlight in 2020. As different organizations exhibit different levels of preparation, it’s clear that there’s plenty of room for growth and the adoption of newer protective supplies and technologies among health facilities. 

There will be plenty of focus pinned solely on the provision of treatments and vaccines against deadly viruses like COVID-19 and any new emerging threats. We’ve seen heavy levels of donations towards different healthcare organizations such as the NHS. The increasing pace of development in this industry is impressive and is certain to continue - highlighting the true value of active management when investing in this area. 

Sustainability

JP Morgan speculates that Coronavirus may be the making of ESG investing. Further to this, any shifts in supply chains may act as a welcome boost for more environmentally conscious production. 

Mounting evidence shows that ESG-based funds are consistently outperforming more conventional funds during the pandemic’s bear market. 

(Image: Refinitiv)

Data specialists, Refinitiv, found that a total of 15,314 funds (44.6%) outperformed their technical indicators in early 2020, whereas 19,026 (55.4%) displayed an underperformance. 

Of the funds measured, 31,567 would be classed as ‘conventional’ while 2,773 have ESG characteristics. Of this large sample size, the ESG-based funds displayed a significant 10% swing when compared to their more conventional counterparts. 

Looking to the Future

Evidence suggests that there are specific markets that will rebound more effectively than others. However, there are of course plenty of risks still present. Naturally, pandemics are largely uncontrollable. The aforementioned industries may be well equipped to rebound from 2020’s bear market, but if we find ourselves experiencing an increase in infections after the end of lockdowns - much like the case in 1918’s Spanish Flu - we could see widespread devastation for businesses regardless of their respective size. 

There’s also the very real danger of inflation. With more money being spent at the end of lockdown, we could see a rise in demand at a time where de-globalization has made it more inefficient while more younger people enter the workforce and start spending money. 

Once certainty that we can cling on to is that a recovery will come, and there will likely be considerable returns for the investors who held their nerve and selected the right markets to entrust with their finances at the right time.