Equity Thematic Update

Piet Schimmel

Senior Equity Thematic Expert

Coronavirus as an accelerator of change

4 June 2020 - Investors can profit from longer-term themes experiencing accelerating adoption owing to covid-19. We see opportunities in areas such as online shopping, digital payments, home entertainment and technology that enables home working, such as cloud computing and cyber-security. Companies are also now moving supply chains closer to home, benefiting suppliers of industrial automatisation. And health care is suddenly more available digitally and at a distance, which is increasingly necessary to service an aging population. Furthermore, utilities continue to choose renewable energy and energy storage despite the low oil price, as renewable energy is still the cheapest option.

Over the past few years, we have published many thematic equity reports on multi-year themes that benefit certain companies as well as their investors. These trends touch areas including digitalisation, sustainability and consumer behaviour - longer-term drivers that seem to be untouched by covid-19. Consumer psychological and financial trauma is likely to continue to weigh on shorter-term demand. But some trends are now accelerating, creating interesting opportunities for investors in these uncertain times.

Online shopping and entertainment get a boost

A large part of the global population is being forced to stay at home and work from home. This situation is accelerating the use of online shopping, social media, digital payments and products for a healthier lifestyle. Even hesitant population groups are being forced to switch from offline to online. And we believe that once consumers experience the convenience and benefits of online purchases and services that it will be here to stay. For entertainment, possibilities outside the home are now limited. Therefore, the popularity of online entertainment, such as streaming services and video gaming, has also increased significantly.

Stepping up digital efforts

To be able to work from home or anywhere else, companies are accelerating investments in cloud computing. Companies are also stepping-up their digitalisation efforts. With the arrival of the coronavirus, supply chains appeared to be very fragile. Around 75% of companies, according to an ISM survey, have experienced disruptions caused by lockdowns. This will likely induce more flexible and more local manufacturing. To save costs and enhance flexibility, more automation will be needed, requiring better use of data and heightened levels of cyber-security. This trend will benefit industrial automation companies, semiconductor manufacturers, cloud-based software developers and cyber-security vendors.

Health care modernises

Due to the coronavirus, the health care system has experienced an explosion of online doctor visits, the home delivery of online drug prescriptions, remote monitoring of patient conditions and diagnostic tests at the local pharmacy instead of the doctor’s office. These solutions were already in place to improve efficiency and quality of care, but got a boost from lockdown periods. Additional tools will be needed to keep health care affordable, as the longer-term demand for health care is growing as societies age. Fortunately, health care is receiving increased support from the public. This creates a favourable background for pharmaceutical and health insurance companies.

Renewable energy and energy storage continue unabated

Demand from utilities for solar and wind energy installations is reported to be intact despite the coronavirus crisis and the general decline in oil prices. Generating renewable energy is in most areas still the cheapest option and is becoming more interesting with energy storage innovations. Renewable energy is the only energy source that will see positive growth in 2020 according to the International Energy Agency. We continue to see opportunities in wind and solar energy as well as in energy storage and companies enhancing the electric grid.

Piet Schimmel - Senior Equity Thematic Expert