With news from Scott Morrison, the chief medical officers and the cabinet taking a slightly more positive tone, the question that many commentators are turning their minds to is how does the economy restart and what does that mean to underlying companies, earnings and valuations…
I am sure you are seeing lots of expert opinion on this but I thought I would take a layman’s approach to considering what our ‘emergence’ could look like.
I am not a psychologist or behavioural scientist so will leave discussions on social impacts to people who specialise in these things. However, we are all consumers and it is actually what we do that will answer this.
So my question to you is:
- What do you plan to do when the laws start to relax on quarantine restrictions? What have you missed most and what will you do first, then second and so on? Assume we still don’t have a vaccine.
As a microcosm of Australian society, I decided to put this question to the team. We have the full melting pot of singles, early relationships, married with young families, married with older kids (that would be me) and divorcees with busy social lives. And we all have parents.
Before we get to their answers to these questions, a couple of interesting positives generally from our ‘internal social study’.
- Generations are talking more. The fact many of the team are proactively talking to parents grandparents and extended family far more regularly came through loud and clear. The ‘all in this together’ concept might be part of it but I think there is an argument that the focus on mortality has reminded us of the value of those around us and to make the most of the time we have together.
- We don’t need as much ‘stuff’ as we thought. Taking away all the shops and making us consider our spending more carefully is making us reassess our spending habits.
- We have a much better understanding of hygiene as it relates to the passing of infections and how to wash our hands!
- Medical commentators are already predicting a reduction in normal flu and cold infection as the world population pays more attention to this.
- Despite the world of technology, we all miss social interaction and physical contact. Hugs, handshakes, high fives and fist pumps are important to us and we now struggle on what will be the new normal.
- Finally we have all learned a lot more about technology and its remote uses.
So what plans have you thought of? The below was a summary from our crew.
The main theme is getting back to NORMAL.
- Based on our group, cafes and restaurants will not take long to feel the impact of relaxed conditions. There may be more space between tables and fewer chairs (initially) but you can see the need for contact will see this industry return rapidly. You then look at the ancillary industries such as: produce, transport, cleaning, imports and then services such as accounting, education etc. There is also a feeling that customers will also support their local businesses first to help get them back on their feet.
- Gyms were an interesting conversation. Our female staffers, while never fans, are now even more reluctant to consider a machine that has been left by a dripping previous user. There is a thought that outdoor training and smaller specialty gyms could benefit from the increased awareness of hygiene.
- Movie theatres also had a mixed response with the thought of sitting in largish crowds for an extended period not being high on the agenda. My jury is out on this one as I would argue there will be pent up demand. The beneficiaries would be streaming services and games consoles and the massive industries behind them
- Domestic travel when the opportunity arises but more car travel than plane initially. Hopefully this bodes well for the GC as we are fairly accessible. First trips will be to see family.
- International travel is very unlikely to be available for some time – in or out – and even when available the team was not that excited about the thought of it. Not great for Qantas and Virgin, airports and transport and definitely crippling for the cruise liner industry.
- Our most avid cruise liner consumer was firmly in the ‘not for a long time’ camp.
- We also want sport back but will probably watch it on TV rather than rushing to games.
- Lastly no more queues, no more shortages and no more frowning when a child coughs or sneezes.
The term normality came up a lot.
Quick investment update:
Investment markets have been up and down during the week. We expect this pattern to continue with positive news being well received but places like New York, Italy and Spain driving markets back down.
Remember what is happening in Australia, Singapore, South Korea and China is not necessarily mirrored in the Northern Hemisphere. Europe, North America and Northern Africa, while making progress, have a much tougher environment to deal with.
We had a few doomsayers out this week, trying to grab headlines when and where they can. There is always someone who predicted the last three crashes that we should all listen to! The fine print ignores they predict a crash every year for forty years knowing about every 8-10 years they will be right.
Our advice team and I have listened to a good sample of the webinars on offer this week and it has reminded me that the good managers are successful for a reason.
- They don’t believe in binary decisions (cash or growth assets as an example) but focus on good companies with solid balance sheets that will ride out this period and bounce back strongly as they have products that will be in demand.
- They have also avoided technology solutions that have never actually made a profit and now will struggle to survive.
- They have avoided some of the most decimated investment sectors such as energy and listed property.
A final say from Kate Howitt, the Portfolio Manager for Fidelity’s ‘Australian Opportunities Fund’;
“You should not become more bearish as markets decline.”
You should have been bearish when they were expensive and now is the time to back your research and buy good undervalued companies.
To all a very Happy Easter and to the adults a spectacular mixture for Easter Sunday morning is chocolate AND champagne (you can always add a strawberry if you want another food group?). I know decadent, but you are isolating?