‘Virtual’ reality in a post-COVID world

12 min read 4 Jun 20

Summary: In this month’s video Kirsty Clark, Investment Specialist, looks at the increase in online activity and growing adoption of technology during lockdowns; from the growth in e-commerce to rising social media use. Could this evolution accelerate a structural shift towards greater digitalisation and virtual engagement, and what are the implications of a burgeoning global datasphere for individuals, businesses and governments alike?

As lockdowns began to ease and economic data across regions pointed to a pick-up in activity, equity markets continued to gain ground in May.

The MSCI AC World Index was up around 4.4%, in US dollar terms, leaving global equities up more than 33% from their March lows.

During the month, news of progress in vaccine research was offset by growing geopolitical tensions. Japanese equities led the gains, having been the weakest performers in April, while Eurozone and US equities also delivered solid gains.

Asia Pacific ex Japan was the weakest regional performer. The Hang Seng Index was hit on the back of the political unrest in Hong Kong following Beijing’s announcement that it planned to impose national security legislation on the city. China A shares also lost ground amid rising geopolitical tensions.

In commodities, oil clawed back a good portion of its year-to-date losses – Brent crude was up nearly 40% in May, driven by a rapid recovery in fuel demand as activity began to pick up, and due to production cuts from OPEC+ and the likes of Norway, helping to redress the demand/supply balance in the oil market.

Gold also inched higher and remains one of the best performing assets classes year-to-date, alongside US 10-year treasuries. Among currencies, the euro and Japanese yen strengthened against the US dollar, while sterling weakened versus the greenback.

At a sector level, tech stocks continued their upward climb, and cyclical sectors such as industrials, materials and consumer discretionary outperformed. Financials and more defensive areas lagged the wider market.

In the wake of the COVID-19 outbreak, and the enormous impact of the pandemic on our day-to-day lives, little else in recent memory has preoccupied our minds or dominated our thoughts in the same way.

Social distancing practices and household confinement measures have altered physical mobility patterns and consumption habits – and technology has been critical in enabling businesses to continue operating.

With ‘a world in lockdown’, e-commerce has soared. Electronic payment solutions provider, ACI, recorded a 74% increase in global online retail sales volumes in March versus a year earlier [1].

UK online sales, as a proportion of all retail sales, increased to more than 30% in April, up from around 22% in March [2].

In the US, e-commerce spending rose by 44% YoY in the first week of April when the majority of states were in lockdown. Online grocery shopping accelerated the most, up 140% in the first week of April [3].

…and we’ve seen businesses scramble to increase their online capability to capture this upswing in demand. Online sales were already carving out a greater market share pre-crisis. In 2019, retail e-commerce sales worldwide amounted to around 3.5 trillion US dollars, and this figure is projected to almost double by 2022 [4], but in a world where physical access remains limited, this trend looks to be accelerating – at least for now.

Content streaming has also risen during lockdown periods. For example, Disney reported that subscribers to its Disney+ service rose from 28 million in February to 50 million by April, and Netflix recorded twice the expected user growth in the first quarter of 2020.

More time at home has also led to a rise in social media use. A recent survey by Bank of America Merrill Lynch suggested that, on average, nearly half of users in the US increased their usage over the past month, with the likes of YouTube, TikTok, Instagram and Facebook attracting the most traffic.

Schools and parents have also adopted online learning tools, and gyms and fitness providers have streamed virtual classes for the ‘stay-at-home’ economy.

Companies across industries and geographies have been reorienting their business models to take advantage of this massive shift to ‘digital’, and while some may be viewing the ramp-up as a stop gap, others are investing in a more permanent omni-channel presence – calculating that, at least a portion of consumers, will maintain some of their changed behaviours, even after we emerge from the crisis.

With lockdowns accelerating the shift to ‘digital and online activity’, data is becoming an increasingly valuable commodity. Referred to as the ‘global datasphere’, the volume of data being created worldwide is set to quadruple over the next five years, given the rapid development of digitalisation [5].

In lockstep with this growth, come mounting concerns about security breaches and individual data privacy protections  – issues that individuals, companies and governments alike are having to grapple with.

As our digital engagement and collective online footprint grows, so too does the race for technological supremacy, and the risk of escalating ‘tech wars’. For signs of this, we only need look at the deteriorating relationship between the US and China, which has seen the US taking further punitive actions in an attempt to curb China’s technological reach.

With supply-chain disruptions compounding fears over privacy, inequality and intellectual property theft, we could see a faster shift away from China, as firms look to diversify supply chains and create more sustainable business models.

The unusual nature of the crisis, and the actions taken to combat the economic and healthcare implications, could determine the longer-term fortunes of companies, many of which are struggling to stay afloat amid the quarantine-induced demand and supply shocks.

Certainly though, there is evidence that consumer demand trends are evolving, and the pandemic may be accelerating structural shifts in how consumers use and deploy technology. Amid the shake-up, there are good opportunities for forward-thinking businesses to adapt and emerge stronger on the other side.

By Kirsty Clark

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

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