Perspective

Paradigm Shift: Looking Beyond The Covid-19 Pandemic [Part 2]

By June 22, 2020 August 12th, 2020 No Comments

Paradigm Shift: Looking Beyond The Covid-19 Pandemic [Part 2]

This is a continuation and part 2 to the series “Paradigm Shift: Looking Beyond The Covid-19 Pandemic”.  Click here to read part 1 of the story.

Sectoral Themes

In the following section, we highlight some sectoral themes that we think would be favourable in a post-Covid-19 world. The list is of no particular order of rank.

Sector Sub-sector Theme
Defense N.A. Heightening geopolitical tensions would spur defense spending as great powers compete to expand influence by hard power.
Financials Payment-processing It is the return of low net interest margins era for banks. But cheap money will mean less incentives to save for consumers and “revenge spending” bodes well for payment processors like Visa, Mastercard, Paypal and Alibaba’s Alipay etc.
Medical Biopharmaceutical Big Pharma gets some respite for charging high drug prices. Future government regulations to prevent exploitations would likely to be complemented with supportive policies that continue to incentivize Biopharma companies to bring new drugs to the market.

Companies with emerging technologies that translate to faster development of experimental drugs (such as Moderna) to garner even greater attention from the market.

Healthcare services/

Medical equipment &

Supplies

The current pandemic has exposed the long-term structural undersupply of healthcare services globally. Governments will see a dire need to shift gear and create excess capacity to deal with future pandemics.

Up-and-coming healthcare services such as digital diagnosis will become increasingly relevant and is key to easing some burden off physical capacities. Companies in this space, such as Teladoc, has hit record highs during current crisis. Locally, Singapore Medical Group is one of the early movers in the telemedicine space.

Medical equipment/supplies makers should continue to see higher demand from restocking and increasing healthcare capacities. Medical robotics will become more prevalent in driving productivity. Johnson & Johnson, Intuitive Surgical, Medtronic and Globus Medical are some examples of companies along this theme. On the local front, we have Top Glove, UG Healthcare and Riverstone that supply medical gloves.

Consumer staples Supermarkets Consumer staples retailers that initially suffered from the emergence of e-Commerce, have evince that their brick-and-mortar model would be indispensable. That said, those thriving are also the ones that have built up online channels to complement their physical outlets.

It is of this reason why Walmart, Costco and Sheng Siong are some consumer staples retailers that rose to record highs during this period. Notably, Sheng Siong has posted record 1Q20 earnings, up by almost 50% on the back of elevated Covid-19 demand.

In next few quarters, Sheng Siong earnings may be further lifted by the government’s supportive measures such as enhanced property tax rebates for qualifying commercial properties which would bring in some cost savings, and grocery vouchers to qualifying households which would boost sales growth. Post-crisis, Sheng Siong stands to benefit from lower new lease costs.

Technology Semiconductors

 

Particularly those producing processing or connectivity chips will be better positioned to continue benefitting from the secular semiconductor growth trend in the long-term.

Examples of technology providers: Nvidia, Intel, AMD, Qualcomm
Fabricators: TSMC, Globalfoundries and UMC.
Fabricator equipment: Lam Research, UMS
Integrated: AEM, Venture Corp, Broadcom
Data centers: Keppel DC REIT

Software-as-a-Service Mission-critical enterprise Software-as-a-Service (SaaS) providers will see higher dependency. Higher degree of experimenting with working offsite will give rise to collaborative software. Examples include: Microsoft, Zoom, Alphabet, DocuSign, Adobe, Salesforce

Cloud computing services, Microsoft, Amazon, Alphabet, Alibaba

E-commerce Closures of numerous brick-and-mortar retails stores during the lockdown gives a big push for adoption of

E-commerce. Examples are: Amazon, Alibaba, Pinduoduo, JD.com, Shopify.

Another tailwind for Chinese E-commerce players is the government’s drive for higher domestic spending.

Cybersecurity Increase in remote business activities will further elevate requirements for data security.

Conclusion

New market paradigms triggered by geopolitics, are also at whims of fluid international dynamics. The sectoral themes and individual stocks mentioned above are by no means any solicitation to buy or invest. This article merely serves to provide some insights and opinions, of which investors can ponder about – beyond the Covid-19 Pandemic crisis.

This is part two of a two-part article. In the first part of the article, we offer some perspective to the paradigm shift from the Covid-19 pandemic.  Click the link at the top of the page to view part 1 of the article.


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