In an op-ed piece for the Sydney Morning Herald, Tom Stevenson, an investment director at Fidelity International, wrote about The New Economic Order, a paper that came from the company’s investment strategists. The paper predicts that there will be three important features in the world emerging from the coronavirus pandemic: “state intervention, fiscal activism and continued Asian economic strength.”
The first two features may seem like a mixed bag of good and bad news in that nationalisation of public services, a reversal of liberalisation as well as higher taxes and more red tape can be expected in terms of greater state intervention. As for the second feature, Mr Stevenson writes, due to higher unemployment rates because of the pandemic, what may happen, especially in the United States, is a return of Roosevelt’s New Deal.
Far and away the most applicable to us is the third feature—continued Asian economic strength. The writer calls it “continued” as Asia was already gaining in strength previous to the coronavirus crisis, and as the first region to have experienced the outbreak of disease, it is also the first to come out of it.
“This first-mover advantage will be boosted by Asia’s well-organised, disciplined, we might feel intrusive, technology-driven response to the outbreak. The gap between Asia and the rest of the world may well widen further if more liberal exit strategies in Europe and the US are derailed by second and third waves of infection. Even without this short-term advantage, Asia is likely to lead the economic recovery for deeper structural reasons too: lower debts, better demographics and higher growth rates,” Mr Stevenson writes.
While some readers may be alarmed at the idea of the decline in globalization as well as deregulation—which helped shaped the world since the last financial crisis in 2008—according to the writer, “investors must deal with the world as it is, not as they would like it to be.”
Additionally, these changes will also pave the way for new opportunities that would benefit many an Asian country, which have youthful and growing populations. These countries stand to gain from greater levels of consumption, advances in technology, and overall growth in the following sectors: leisure and travel, financial services, and healthcare.
The world was already on the move away from globalization to regionalization, due to the trade wars between the two biggest economies over the past few years. The interruption to global supply chains due to the pandemic will speed this up further.
Investors must now turn their sights to the change from physical to online consumption. Mr Stevenson writes that e-commerce and home delivery, especially for food, will gain much ground. Forward-looking investors should keep their eyes open for opportunities with connectivity, such as contactless payments, tele-medicine, and online education, as well as healthcare, as this would be a reversal of “ years of under investment.”
The writer warns that before this happens there is still quite a way to go and that climbing out from a “steep slope” may take till the coming year. He posited two possible scenarios for economic recovery, one that is V-shaped, with recovery occurring as quickly as the second half of 2020, and the other that is L-shaped, which may see a sharp contraction followed by a slow, or even no, recovery. -/TISG
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