13/04/2020
The consequences of COVID-19 vary broadly depending on the sector. The change of scenario from freedom to quarantine at home change our necessities as well as our consumer behaviour. There is no need to worry about holidays or new clothes, and it is for toilet paper and a streaming platform. Moreover, the absolute lockdown of a vast amount of countries paralyse the consumption first (as we cannot go out of home to spend it) and then the supply (as if there are no workers, factories cannot produce). Consequently, if companies do not sell, they cannot maintain its workers and many employees lose their jobs, it diminishes their capacity of spending. As a result, there is a diminishment in the consumption and the international trade is paralyse.
The next figure from a Mckinsey’s report shows the behaviour of the industries in the S&P 500 since the outbreak of the epidemic (13th April)
As the figure shows, industries related
Air industry
Probably, the pandemic last until there is a vaccine for it, so at least it will endure 12-18 months. During these months, the number of flights will be reduced considerably and the revenues obtained by airlines will be minimal. As a consequence, there will be several bankruptcy or nationalisations. After the 18 months, people maybe are more reluctant to long-distance travel and due to the use of videoconferences; the number of business trips will probably be reduced. It can take more than five years to reach the same revenue levels than before the crisis.
Oil industry
The demand has fallen 20-25 Million barrels/day, driving the price down to around 25$ (conflict Russia – Saudi apart). Recently, OPEC+ and some other nations as the US and Canada agreed on a cut in production to diminish the supply. The problem now is the amount of oil storage in vessels, in addition to 80% of the capacity inland reservoirs. The agreement will last to April 2020. Initially, it has been agreed to cut around 19 million barrels/day, but it will be diminishing progressively during the next two years. The Brent barrel is expected to recover progressively towards the 45-50$ in two years.
Banks
During this crisis, people will take out the bank their saving due to necessity. Consequently, banks are going to have less operation capacity and as a result fewer revenues. The value of its assets will diminish too as the Real Estate market will go down due to the lack of demand. I will allocate an entire article to talk about banks, as they are suffering from the low-interest rates, the intervention of central banks, the disruption of fintech companies…
On the other way, not everything is bad news, there are some sectors which are going to be tremendously benefited of this crisis, such as biotech companies, pharmaceuticals and technology. Moreover, retail or utilities will be resilient enough to overcome the situation without a lot of difficulties.
Something is clear. It makes no sense to invest in companies without understanding the effects that its sector is going to suffer. The coming years are going to be different. Both because of the virus and the new trends COVID-19 is bringing around.