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EVEN AFTER LOOSENING ITS GRIP, the coronavirus will leave indelible marks on society. “It’s going to change how we think, live, work, learn, shop, travel and entertain,” says Kathryn C. McDonald, Vice President and Market Strategy Analyst, Chief Investment Office, Merrill and Bank of America Private Bank. “History has shown that past disruptions of this magnitude, as painful as they can be, have often also boosted resourcefulness, productivity and innovation,” adds Joe Quinlan, head of CIO Market Strategy, Chief Investment Office for Merrill and Bank of America Private Bank.
The primary effect of the coronavirus pandemic will likely be to greatly accelerate the pace of existing trends, such as remote work, e-learning, healthcare technology and rising public debt, believe McDonald and Quinlan. A new Chief Investment Office (CIO) report, “The Great Acceleration,” authored by the two of them, lays out 10 major trends, as well as some of the long-term investment opportunities—and risks—they could create. “As you consider investment strategies and your asset allocation strategy for the recovery ahead, your advisor can help you determine what these ideas might mean for you,” says Quinlan.
1. De-globalization. Global supply chains are shifting away from China and becoming more local, with more reliance on automation and robotics.
Investment considerations: Potential opportunities in automation, robotics, 3-D printing and precision agricultural machinery.
2. The E-everything economy. The digital revolution is expected to speed up amid rising demand for telemedicine, e-commerce, e-learning and mobile banking, among others.
Investment considerations: Companies providing these services, as well as delivery drones and virtual reality, could prosper.
3. Next-gen tech infrastructure. A rise in remote work has underscored the need for better telecommunication infrastructure.
Investment considerations: Promising areas include 5G telecom networks, fiber optics infrastructure, cloud-based services and related activities.
4. Expanded government spending. Trillions of dollars in government stimulus have been crucial in addressing public health needs and limiting economic devastation.
Investment considerations: Higher government spending could spur future inflation, potentially benefiting real assets, such as commodities, and inflation-indexed bonds.
5. Widening inequality. The crisis has exacerbated already growing gaps in income, wealth, health and digital access, with calls for greater redistribution of wealth.
Investment considerations: A larger share of income for workers, to narrow those gaps, could put pressure on corporate margins.
6. Health-care infrastructure and innovation. The virus has exposed deficiencies in global health-care systems already under pressure from aging populations and chronic diseases.
Investment considerations: Opportunities in pharmaceuticals, vaccines, medical software and hardware, and related medical goods and services.
7. Biosecurity and smart cities. The need to monitor health and track and contain future diseases should accelerate the trend toward smart cities, while intensifying the debate over privacy.
Investment considerations: Greater potential demand for biosecurity hardware, artificial intelligence and related technologies.
8. Cybersecurity. Cyber-attacks have skyrocketed amid greater internet use from remote locations, leading to increased spending on data protection by government agencies, schools and corporations.
Investment considerations: Could benefit hardware and software makers, data management firms, defense contractors and IT service providers.
9. Increased consumer and business savings. Consumer debt, already low before the crisis, may dip further as people err on the side of caution. Companies, too, could cut back, no longer issuing debt to buy back shares.
Investment considerations: Higher savings rate could hurt consumer stocks and benefit high-quality growth stocks.
10. Artificial intelligence (AI) in disease prevention and health care. AI applications may enable faster, more accurate disease tracking, medical diagnosis and treatment and vaccine discovery.
Investment considerations: Should benefit large technology companies as well as health-care and artificial intelligence innovators.
Information is as of 05/15/2020
Opinions are those of the author(s), as of the date of this document and are subject to change.
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The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for Global Wealth & Investment Management ("GWIM") clients, is part of the Investment Solutions Group (“ISG”) of GWIM, a division of Bank of America Corporation (“BofA Corp.”).
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