With investors concerned over the global impact of the coronavirus, asset and wealth managers have given broad recommendations on sectors that they believe will be resilient during the pandemic.
When the coronavirus started to spread outside of China in January, managers gave similar views that investors should avoid sectors around tourism, while companies in the healthcare and online space should remain resilient. After three months, healthcare and IT continue to be favoured by most investment managers.
Indeed, both sectors have been more resilient in the global equities market, with the MSCI ACWI Health Care and IT indices outperforming the broader MSCI All Country World Index this year, according to data from FE Fundinfo.
However, investors should be mindful of taking broad exposure to these sectors as not all companies operating in these industries are performing well, warns David Gaud, Singapore-based chief investment officer and head of discretionary portfolio management for Asia at Pictet Wealth Management.
“We are positive and constructive on the healthcare space. But we have to be mindful that not the whole healthcare sector is going to benefit from the pandemic,” he said at a recent webinar organised by the firm.
For example, Gaud is cautious of the large pharmaceutical companies globally. According to him, employees from these groups have been requested to work in hospitals to fight the pandemic, which has led to a slowdown or even freezing some operations in pharmaceutical companies.
“There may be demand for [pharma-related] goods, but there is potentially a disruption at the supply level.
On the IT front, Gaud said that investors have been attracted to companies that provide online education in China.
“It [seems] like a strong thematic case, where people are staying at home and subscribing to online classes.
“But at the same time, we have seen major exams postponed or cancelled,” he said. For example, exams that Chinese students need to enter schools and universities overseas, such as the English tests for IELTS and TOEFL, as well as the GRE and GMAT.
“When you cancel those exams, you may find a lot of students deciding not to pay further tuition fees [for exam preparatory courses]. So the momentum that investors may have been expecting from that theme may actually be disappointing in the end,” Gaud said.
SOE, tech opportunities
On the flipside, Gaud believes there are some opportunities in the market that investors can take advantage of. One example is Chinese state-owned enterprises (SOEs).
“While companies globally have been cutting dividends to preserve cash, some SOEs in China are still able to provide investors with dividends.
“Similarly, some tech companies in Taiwan are also paying a 5-6% dividend yield,” he said.
Gaud is also positive on companies that provide cloud-computing technology.
“There are very strong trends there, as more people are forced to duplicate their network and computer equipment at home in order to continue to work.”
However, investors should not be overweight equities.
“While there are opportunities, they do not call for a massive upgrade to overweight equities or even bonds. For now, we have to be pragmatic, so we are overweight cash,” he said.
Gaud acknowledged that the current market situation is difficult to navigate. “To be frank, there are so many unknowns.”
Depending on the risk profile of the firm’s clients, cash allocations are around 5%-15%, according to Gaud.
