Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
The world was changing fast before Covid-19. But the pandemic has compressed existing developments, bringing forward trends that might have emerged anyway but over a much longer time horizon. Here are ten key ways in which the crisis is creating a very different, new world.
1. The end of the nine-to-five commute. For many office workers, and their employers, the lockdown in March was an eye-opener. The ease with which work could be transplanted from office to home surprised many - including some of us doing it. With everyone forced to make the best of it in a spare bedroom or at the kitchen table, old hierarchies have been swept aside, along with time-wasting journeys to work. Video-conferencing has prompted a re-assessment of whether companies really need expensive city-centre headquarters buildings. For some, work will never be the same again. The death of the office has probably been exaggerated because we are naturally social animals. But the new approach will be much more flexible and varied. And few will complain about that.
2. Related to the implementation of new ways of working is the rapid adoption, even by dyed-in-the-wool technophobes, of a range of new digital tools. Who hasn’t become newly-adept at sharing their screen or chatting to their grand-children through a tablet? We were, of course, already becoming much more at ease with the online world. From grocery deliveries to AirBnB, tracking our exercise on Strava to streaming films with Amazon Prime, there is not a corner of our lives that is not easier, if perhaps a bit more impersonal, than it was. We were heading this way before, but we may have experienced five years of change in five months.
3. The downside of the shift online is self-evident whenever you venture onto the High Street. When John Lewis shuts its giant department store in the centre of Birmingham, you know that something has gone badly wrong with bricks and mortar retailing. The retail sector’s woes were in evidence long before the pandemic shut down non-essential shops for three months, but the coronavirus provided a shock from which many familiar names will not emerge unscathed. The sector is up in arms at the way in which Chancellor Rishi Sunak’s summer statement seemed to pass it by in favour of hospitality and tourism. Excessive business rates and the tax treatment of online rivals give the sector good reason to grumble.
4. Another sector which has seen its world turned upside down is travel. Whether it’s the Government’s advice to steer clear of public transport, or nervousness about getting in a sealed metal tube in the air with dozens of potential super-spreaders, transport companies face a difficult future. We have been here before. The number of people getting on a plane collapsed after the 9/11 attacks but, within a couple of years, journeys were back at pre-attack levels, and the growth continued unabated for nearly two decades until the current crisis. It is hard, however, to see companies being willing to tolerate pointless air travel any more. The cost is too high, both in terms of hard cash but also reputationally in a world that is increasingly focused on protecting the environment.
5. Perceptions about environmental degradation are changing fast and so, too, is the way in which we view social ills such as the deeply-entrenched inequality that Covid-19’s uneven death toll has highlighted. The pandemic has not treated all of us equally. We are definitely not all in this together and that will not have passed the politicians by. We should expect redistribution of wealth to become a more insistent theme on both sides of the political divide. Levelling up comes with a price tag and those who are most likely to pick up that tab should focus on how higher taxes might affect their wealth from this Autumn’s budget onwards. We will return to this topic over the summer.
6. Related to the theme of redistribution is the balance between fiscal and monetary stimulus. Since the financial crisis, interest rates and other measures controlled by central banks, such as quantitative easing, have been the principal tool to keep the economy humming. Going forward, we might expect tax and spend to feature more strongly in the equation. Monetary policy has a worrying habit of leaking out of the real economy and into the financial markets, where the beneficiaries tend not to be those in greatest need. It is much easier to target government spending where it is required.
7. Opening the spending taps may look like a victimless crime. The Chancellor has signed off on stimulus measures in the past four months that have increased the budget deficit six-fold. Government debts are now bigger than the annual output of the entire economy. But someone has to pay the bill. If tax rises and spending cuts cannot balance the books then Governments will resort to the greatest stealth tax of them all - inflation. We have forgotten what spiralling prices are like, but we may well find out again sooner rather than later.
8. The return of inflation will be accelerated by another consequence of the pandemic - the replacement of globalisation with a more protectionist, national or regional economy. Globalisation has its faults, but it can be credited with keeping a lid on prices for a generation and more. Again, bringing supply chains closer to home was already underway before the coronavirus struck, but it highlighted the fragility of the global economy and deepened suspicion between the two biggest players in that economy. The global tide has turned.
9. Ironically some of the biggest opponents of globalisation may also be brought down by the pandemic. Populist politicians, particularly in Europe and the Americas, have been among the least capable leaders when it has come to a Government’s fundamental job of protecting its citizens. Later this year, American voters will cast their vote on Donald Trump’s performance. The opinion polls are pointing to the first one-term President since the first George Bush. This could be both good and bad for investors. A Biden Presidency would be less chaotic, but arguably less business- and market-friendly too.
10. The more assured handling of the crisis in Asia highlights another pre-existing theme that has probably gathered pace in the past few months. The region was first in and has been first out of Covid-19. And that will give it the chance to continue pulling away from the West in the battle for economic supremacy in the 21st century.
None of these trends are set in stone but how they evolve will have a big impact on all of our savings and investments. For ongoing guidance through the changes ahead, visit our newly-revamped Markets and Insights pages here.
In the meantime, don’t forget to catch up on our latest market views via next week’s Investment Outlook webcast, due to be published on Wednesday 15 July. If you would like to submit a question to be answered in that webcast, you can do so here.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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