A year on from COVID-19: Who are the winners and losers in the markets?

Despite furlough schemes and other support measures, certain sectors were hit particularly badly by the coronavirus pandemic with many businesses forced to close, and some unlikely to reopen. For obvious reasons, the hospitality, travel and leisure sectors suffered greatly, as did many retailers deemed to be providers of non-essential goods or services. But on the flip side, plenty of businesses have survived, or even thrived. Who have been the winners and losers from all this, and will their positions change after the pandemic?

Property

Many of us have been able to work from home, and we may have missed the company of our colleagues, but probably not the commute. While working from home has worked out well for lots of workers, what about the business owners?

Recent surveys have shown that the working from home experiment has been something of a success. Productivity has been so strong that companies such as Amazon, Alphabet (Google and YouTube’s parent company), Morgan Stanley, JPMorgan, Twitter, and others have announced they will continue with the programme. In addition to the evidence of positive productivity, many mid to large-sized corporations have realised they can save a bundle in rent by running their businesses effectively outside an office environment, negating the need to maintain flashy offices in expensive cities.

It’s now a given that a mixture of home and office working should soon be the norm for all manner of organisations. While the residential property sector is looking healthy as workers relocate to quieter areas and away from cities and towns, the outlook for the commercial sector is more complicated. The demand for large spaces for corporate headquarters should continue to fall, and this will mean a rethink. It will be interesting to see if WeWork, former poster child of commercial real estate, manages to raise itself from the dead and finally go public via a SPAC as rumoured, following its failed IPO attempt in 2019. That depends on its response to changing work habits. Many office buildings will have to be repurposed for mixed usage.

Tech

With people spending increasingly longer in their homes, the employers they work for are likely to raise their spending on anything that makes life more comfortable and productive. This should continue to benefit companies such as Amazon, Apple, Microsoft, Alphabet, Slack and Zoom. Amazon, one of the biggest corporate beneficiaries of lockdown, reported a 44% increase in year-on-year sales and a tripling in profits. But it doesn’t consider these blow-out numbers as a one-off due to lockdowns, as it still released upbeat forward guidance for the second quarter of 2021.

Retail, travel & hospitality

It’s perhaps a sad fact that huge retailers such as Amazon and Walmart will keep getting bigger, to the detriment of the smaller chains that have been unable to adapt quickly enough to the new reality. Not long ago, Walmart was criticised for relying on its big, out-of-town superstores and neglecting e-commerce, yet now its online service contributes so much to the business that it’s actively challenging Amazon in certain areas.

Small retail chains that depended on shoppers walking in off the street are in terrible trouble. In the UK we’ve seen many high street stalwarts disappear, such as Debenhams, Topshop, Burton, Monsoon and T. M. Lewin. In the states, JCPenney, Neiman Marcus, and J Crew have filed for bankruptcy. Meanwhile, many restaurant groups, pubs, airlines, hotels, resorts, and cruise lines will struggle to recover. There’s also the knock-on effect on the companies that provide goods and services to these sectors.

The question now is how do those key, surviving high street players respond? There’s certainly less competition around, and it’s fair to say that many of those failed retailers were not only over-indebted, but also neglecting to provide what customers were after. The high street is vitally important, socially as well as commercially. To ensure its survival, there will need to be some help in evening out the advantages that online retailers currently enjoy. A rethink on business rates may be a good starting point.

Entertainment

People spent a lot more time using streaming services during the global lockdowns, yet Netflix’s stock fell 10% straight after it announced revenues and earnings that beat expectations. The reason? Global paid net subscriber additions came in at 3.98 million against expectations of 6.2 million. The streaming giant blamed the slowdown on the ongoing coronavirus pandemic, which forced the company to delay some of its big-name shows and films. But it also faces stiff competition from the likes of HBO and Amazon Prime, not to mention Disney+ which launched just months ahead of the pandemic hitting.

What does the future hold?

Growth stocks, including Alphabet, Apple, Amazon, Facebook, Microsoft have all just posted solid earnings and revenues for the first three months of the year. These have not just weathered but prospered during the pandemic because of the types of businesses they run. But there are ‘indirect’ pandemic effects on stocks as well. Just consider the responses to the crisis in the form of monetary stimulus from central banks, and fiscal stimulus from governments. All companies can benefit from low borrowing costs, but loose monetary policy has done wonders for companies with high valuations based on future growth.

Consider Tesla whose stock rose roughly tenfold last year. Low interest rates have helped Tesla borrow cheaply, refinance and expand, while fiscal stimulus has also encouraged stock market speculation. Not bad for an EV manufacturer that, despite recent gains, still produces far fewer vehicles than most of its rivals.

Going forward, we can hope that the coronavirus will become less of a concern and can be tamed by vaccines from the likes of Pfizer, AstraZeneca and others. Hopefully, governments won’t rush to put us back in lockdown if new cases emerge, our economies will recover, and unemployment will fall. But then we have another problem to address – the shocking levels of government debt amassed in response to the pandemic. We’re currently living with low interest rates that make financing this debt relatively painless. But what if the recovery leads to a leap in inflation? Will the world’s central banks sit back and let that happen, or will they be forced to raise rates? Either situation will throw up big challenges for investors.