Posted inAsset managers

Covid boost to digital trends

Coronavirus is fostering new opportunities across healthcare, industrials, government spending and changing consumer behavior, say investors.
Data

The pandemic looks set to herald the dawn of a new market where investors can find a wave of opportunities to adapt their portfolios to new trends.

These will stem from various areas, including: the future of healthcare and industrials, government spending, and changing consumer behaviour, said investors at Franklin Templeton webinar.

Expectations of continued healthcare innovation and an increase in drug manufacturing capacities are likely to create a structural trend in biopharma, said Zehrid Osmani, portfolio manager focused on global equities at Martin Currie.

Further developments are also likely in the digitalisation of healthcare. This can take the shape of telemedicine improving the speed of triage, as well as in relation to convenience and efficiency in managing low-acuity patients, he said, adding that remote monitoring devices will see growing usage.

The story looks especially strong in emerging markets. “Emerging markets healthcare spend could achieve teens level of growth over the next decade, compared with mid-single-digit growth for developed markets,” said Osmani.

Medium-term opportunities such as digitisation and automation are also emerging in the industrial sector. The same is true for greener infrastructure initiatives, particularly in renewable energy, efficient buildings, high speed railway and electric vehicles.

Martin Currie is looking at mid-teens growth potentially in 2021 and a more-than-doubling of industrial robotics units over 10 years as companies continue to innovate through digitisation. “We also expect ‘cobots’, or collaborative robots, to grow at around 35% to 45% annualised over the next 10 years,” said Osmani.

Among the developments he forecasts to become more prominent are smart factories, automated warehouse monitoring, digitised logistics, remote maintenance and digital twins.

More spending needed

Expected government spending at this stage of the recovery should also drive certain sectors. “The macroeconomic impact from additional government spending depends on how much of it is dedicated to productive activities, rather than simply filling the holes created by Covid,” said Bonnie Wongtrakool, global head of ESG investments and portfolio manager at Western Asset Management.

At the same time, she believes fears of inflation due to continued stimulus are overdone. “We are now seeing market pricing start to reflect that as well.”

While greater debt loads pose higher risks to countries reliant on external funding, debt expansion in emerging market countries has been more muted than in developed markets.

Further, added Wongtrakool, lessons learned over the past couple of decades show that monetary policy on its own can’t create higher inflation.

Adapting to new behaviour

Investors should also pay attention to trends appearing as a result of the change in consumer behaviours. 

The focus by growing numbers of people on sustainability and societal issues, for example, is being reflected in shopping habits – and companies are adapting quickly.

“Footwear companies, for example, are reducing their carbon footprint and denim manufacturers are reducing water usage,” said Sara Araghi, research analyst and portfolio manager and head of the consumer sector team for Franklin Equity Group.

In addition, she said, manufacturers are reviewing where certain operations are based, in turn impacting supply chains and labour.

Inevitably, digitalisation is also creating new opportunities. “E-commerce investment will also likely continue at a rapid pace, coupled with brick and mortar – consumers want the flexibility of online, but also value the in-store experience and expect more from it,” added Araghi.

Part of Mark Allen.