By Geoff Wilson
We are collectively experiencing a major disruption to all aspects of our lives. Health workers are grappling to control the coronavirus, the sick are fighting the disease, the newly unemployed are trying to adjust, and working-from-home arrangements are almost compulsory for those still working.
Although this period is temporary and the need for isolation and social distancing will pass, generational traits are emerging and behavioural changes are taking place. Over time, this coronavirus shift will create opportunities for investors.
Another bear market
There has been an “unprecedented” use of that word ever since governments and investors began to take the coronavirus seriously. While the impact and duration of the lockdown-induced recession is unknown, heightened uncertainty is a consistent feature in all bear markets and recessions.
The raft of sharemarket records set in recent weeks belies the fact that the coronavirus will not structurally change the financial landscape on a permanent basis and the flurry of heavily-discounted equity raisings, sharp rallies and dogged fixation on short-term news flow point to the normality of this bear market. Meanwhile, structural behavioural changes are already occurring, and these will influence financial markets for decades to come.
While working from home in Sydney a few days ago, my printer alerted me to the fact that I needed a black-ink cartridge. For years I would think nothing of the 30-minute return journey to Bondi Junction Officeworks to purchase two cartridges, the one I needed at the time, and another to delay the next trip. To avoid unnecessary outings and maintain social distance, I completed an online order and purchased four cartridges. Even as an “old dog”, I have no plans to readopt inefficient old practices when lockdown ends.
The impressions will be deeper for the generation coming of age during this period. The Great Depression created a generation of thrifty Australians obsessed by value.
My father was highly vigilant in ensuring no unused lights were left on in the family home and he maintained this practice his entire life. While this may appear a trivial example, it encapsulates one of my father’s core values, which significantly influenced his decisions throughout his life. As a shared value, thrift drove consumer behaviour for decades.
If younger generations move their lives even more towards online, and retailers, workplaces, health professionals and educators accommodate this shift, the implications will be significant.
As an example, we can explore the flow-on effects of the increase in online retail sales. Around 15 per cent of retail sales are currently conducted online, now necessary given the circumstances; they could permanently increase to as much as 50 per cent as habits are formed during this period. And while panic buying will subside, the remnant uncertainty may mean online shopping baskets are larger.
As working from home becomes normalised at an accelerated pace, many young professionals will eschew a return to the days of wasting hours on overcrowded public transport rides into overcrowded offices. In the short term, working from home after lockdown may only take place in nimble and cost-conscious start-up companies, but the long-term shift may be far broader, reshaping how we work and live together, with dramatic implications for the transportation, technology and commercial real estate sectors.
Observing changes in behaviour can generate some of the best investment ideas. The state of flux we are experiencing will result in major shifts in consumption and production that will remain long after life “returns to normal”. Investors should look for the early signs.