The coronavirus pandemic threatens to accelerate the de-globalisation trend that has been gathering force since the financial crisis. But while the web of international economic relations may well change post-virus, international trade will likely take on new forms, rather than being undermined, Pictet Asset Management’s Chief Economist Patrick Zweifel argues in Globalisation after the virus.
Flows of physical goods may fall, but will be replaced by digital services, Zweifel says. Meanwhile, supply chains are likely to diversify and shorten, making trade more regional, as witnessed in Asia over the past three decades. “Where this raises labour costs, companies can compensate by moving towards greater automation,” he notes.
Real-estate investment trusts (REITs) have been a more surprising victim of the Covid-19 pandemic. Far from providing much-needed protection in the recent bear market, “over the past few weeks REITs have traded more like economically sensitive stocks,” Lars Kreckel, Global Equity Strategist with Legal & General Investment Management, writes in his latest blog, Making the REIT call.
Why? Rents are much more at risk than in a typical recession, as tenants are either unable or choose not to pay their landlords, creating income shortfalls. At the same time, many REITs have debts of their own. “This combination means that REITs’ dividends are much more at risk than normal,” he says.
Nevertheless, lower leverage, fewer near-term maturities, undrawn credit lines and the ability to scale back development pipelines mean existential threats to REITs remain limited. “On balance, then, while we do not think REITs as an asset class are structurally challenged as a result of the recent developments, it seems likely they will continue to trade with unusually cyclical characteristics for the duration of the crisis,” Kreckel concludes.
The hotels and hospitality sector has been another area hit hard by the pandemic. But with various nations starting to relax their lockdown measures, thoughts are turning to how – or even if – the world will have changed, and who will be best-placed to thrive.
“People will always want to be near each other, learning, working, sharing experiences, drinking coffee, having a cocktail,” says The Student Hotel founder Charlie MacGregor in a new video interview. “When millions of people across Europe start to emerge from lockdowns imposed during the coronavirus pandemic they will thirst for the type of human interaction in the ‘blended living’ model of living, working, socialising and education that The Student Hotel is pioneering across multiple countries.”
Post-virus, attention may also return to what had been until recently the big issue on people’s minds: climate change. Committing funds to mitigate its effects remains vital. And Amazon CEO Jeff Bezos has a lot of them.
Bezos’s climate change billions, a new note by Steve Freedman, Senior Product Specialist with Pictet Asset Management, picks out three areas the Amazon founder should invest in if he wants the US$10 billion he’s pledged to his Earth Fund to have the greatest possible impact. Freedman’s suggestions: research into advanced wood-based materials for construction to replace steel and cement; clean batteries and energy storage; and developing biodegradable bioplastics.