Global markets continue to perform despite the economic impact of Covid-19, writes Mike Taylor, CEO and founder of Pie Funds.
Global markets continue to be driven higher by the same themes. Record low interest rates (which is forcing investors out of cash in never-before-seen numbers), fiscal and monetary stimulus on an unprecedented scale, and an accelerated digitalisation of the global economy.
Everyone’s gone digital
Covid-19 forced all of us to adapt our lives to be more online. This caused a step-change in the adoption of online tools and the digitalisation of the global economy, with everything from online shopping to Zoom doctor visits to online gaming.
You have probably noticed this through some of your own behaviour, too. You’re probably working from home more, perhaps using new tech tools, and doing more online shopping.
Winners and losers
This change has brought big winners and losers. Businesses that could adapt quickly to an online environment have thrived, whereas those stuck in the old world have struggled. With the notable exception being home improvement. We were stuck at home for so long, many had more time to think about the home they want to live in. And now with international travel restrictions and up and down local alert levels, many households re-allocated the holiday budget to renovation. That consumer spend has boosted all industries associated.
Tech’s booming, but a caution
The US tech-heavy NASDAQ has been the best performing market in the world due to companies like Amazon, Zoom, Etsy, PayPal and Netflix being huge Covid-19 beneficiaries. Markets with less exposure to tech, like the UK FTSE or ASX, have not performed as well.
NASDAQ market year to date, as at 14 October 2020
A vaccine due in 2021 could see a reversal in market leadership from tech, to recovery stocks like travel and tourism. However I would caution against this view as the trends in place are likely to continue, regardless of when a vaccine arrives. The changes to consumer behavior are permanent. Many of us work from home more often despite no longer being in official lockdown, and many employers have embraced flexible working hours.
Investors should still be careful about chasing tech stocks with valuations heading to the moon. Tech stocks in general are trading on very high valuations, in particular the market darlings like Zoom, Tesla or cyber security company Crowdstrike. If these companies don’t deliver to the market expectations, or investors decide after a vaccine is released they would rather switch to recovery plays and the market multiple for tech drops, there could be some nasty surprises. As they say, do your own research!
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To download our product disclosure statements, go to www.piefunds.co.nz. Past performance is not an indicator for future returns. This information is general in nature only. You may wish to discuss with an expert before relying on it.