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The hottest equity themes in a post-pandemic world

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BNP Paribas Asset Management
 

It is already clear that the 2020 pandemic has given rise to a cycle of low growth and high debt. In this setting, value added will likely be generated more effectively by actively picking equity investments and doing so with a high dose of conviction. We believe that to find the incongruities in performance between the top companies and the others, investors need to be highly selective.

The latest white paper from BNP Paribas Asset Management, Thematic Equity Investments for a Post-Pandemic World , provides a deep analysis of the equity themes most likely to see sound growth under the new paradigm:

  • Disruptive technology
  • Healthcare innovation
  • Consumer innovation
  • Environmental challenges
  • The energy transition

Structural – and sustainable – themes

At BNP Paribas Asset Management, we place a premium on contrarian, independent thinkers who can identify the structural themes that will drive post-pandemic socio-economic trends and the specific companies that are best placed to exploit them.

To qualify for investment, companies need to meet our ‘3Es’ of sustainable investing – specifically, the energy transition, the environment, and equality. At the same time, they must have strong business models, significant pricing power, solid brand loyalty and resilient balance sheets. In other words, they must be quality investments.

Looking to the future

We believe the COVID-19 pandemic will ultimately have profound implications for business and consumer behaviour. This will shape the investment themes of the future, often reinforcing trends and developments that were already emerging before the virus struck.

The decision to lockdown society triggered a seismic shift in the world of work in a matter of days. Technologies that enable remote working and communication are already benefiting from changes in working habits.

The pandemic has shown that some teleworking is viable for most companies, and we believe this shift to agile working is here to stay. It implies greater demand for technological and logistical services to facilitate teleworking, but less demand for the transport services and commercial real estate.

The investment themes within disruptive technology

Business travel has also changed fundamentally. It has been disrupted severely and could remain under pressure.

The pandemic is also likely to result in lasting changes in patterns of consumption, for example, by bolstering the shift to e-commerce. How we allocate our time between work and leisure and the way companies do business could well change definitively.

Rational optimism

We believe that science and innovation, supported by the capital markets, will deliver scalable solutions to a range of global challenges. One example of a related investment theme is ‘healthcare’. The pandemic has exposed issues around healthcare system capacities and coverage.

Spending on healthcare may rise to address such deficiencies. We also foresee considerable expenditure in the biotech and pharmaceutical sectors to fight the pandemic with tests, antivirals and ultimately a vaccine.

Beyond that, technological innovators will seek improvements in the quality of healthcare services – and grow their earnings while driving those trends.

The investment themes within healthcare

Change is on the way…

The disruption caused by the pandemic has been ferocious and fast-moving and is likely to remain so. Whereas technological innovations, commercial trends or political movements typically take decades to effect change, this crisis has the potential to trigger a much more sudden realignment.

Such major shifts in economic activity will affect corporate earnings and ultimately equity valuations. This can be fertile territory for long-term investors ready to take high-conviction positions.

Investors must also allow for the possibility of radical shifts in the regulatory and anti-trust framework within which companies operate. This would clearly impact valuations, alongside the more obvious changes in tax and benefit system to address inequality and the need for more inclusive economic growth.

The key to investing successfully in this new environment is to understand the drivers of disruptive change and identify the most efficient way to benefit from investments in companies at the forefront of these secular growth trends. They can be expected to outperform the broader market, as should concentrated portfolios of such stocks.

Towards tomorrow – Cool heads required for a new world order

One thing seems certain in the post-pandemic world: Society – and the economic order that supports it – will not go back to the way they were. Change thus remains at the core of our investment debate.

Stressful periods require cool heads, well thought-through capital allocations and careful portfolio construction built on conviction. These are the important ingredients for creating long-term sustainable investment returns in a changing world, in line with the stated ambition at BNP Paribas Asset Management.

Read our white paper “Thematic Equity Investments for a Post-Pandemic World


 

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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