The global economy is trying to battle its way out of the coronavirus movement restrictions, but the process is far from easy.
While some analysts still talk up prospects of a V-shaped recovery, others are wary as fresh Covid-19 outbreaks are reported in countries that thought they were clear.
This leaves investors in a quandary. Some will be looking to take advantage of recent share price falls to invest in assets at much lower prices than before the crisis. Others will be wondering whether to play it safe right now.
If you are looking to invest $10,000 (Dh36,725) over the next quarter, here are three investment trends to consider right now. The first will grow if consumers leave the house and start spending again, the second will rise if a lost continent plays catch up with the US stock market, and the third could help build a brighter, greener future.
Target the 'get out of the house' trend
Vijay Valecha, chief investment officer at Century Financial, says the “stay-at-home trade” was all the rage during the global lockdown, as investors bought shares in companies that benefited from a captive audience working or seeking entertainment at home.
“Video teleconferencing giant Zoom, streaming company Netflix and e-commerce giant Amazon were hugely popular,” he says.
Telemedicine and virtual healthcare company Teladoc Health, cloud computing software specialist Okta and digital payment company PayPal were also stay-at-home trade winners.
Mr Valecha says investors may now want to target the “get out of the house" trend, as movement restrictions are lifted around the world.
“Malls, theme parks and restaurants are starting to reopen. People will hit the gyms, go to movie theatres, and start travelling again. Even if we get a second wave, governments will be less inclined to reimpose a lockdown,” says Mr Valecha.
This is a relatively high-risk trade, but rewarding for those who are willing to accept the potential downside, if nervous consumers prove reluctant to spend.
Mr Valecha suggests airline stocks including Texas-based carrier South West Airlines and British Airways-owner International Consolidated Airlines Group. “UAE-based theme park operator DXB Entertainments, which owns Dubai Parks and Resorts, could be another beneficiary, especially when overseas visitors return,” he adds.
Brave investors could even take a chance on cruise operators such as Carnival, whose ships include virus-stricken Diamond Princess. "It was one of the biggest losers in the March crash but has enough money to sail through 2020. Pent up demand for leisure travel should benefit the cruise stock.”
Mr Valecha also tips ride-sharing company Lyft: “This is Uber’s only competitor in the US, and can rally as the ride hailing market recovers.”
Invest in 'underperforming' Europe
Europe is now emerging from the movement restrictions and this could provide an opportunity for this underperforming region to play catch-up with the superior performance seen on US stock markets lately.
Moukarram Atassi, head of investment management at the National Bank of Fujairah, says European equity markets have been trading at a discount of up to 20 per cent to US equities for years, but that may soon reverse.
He says the EU’s massive €750 billion (Dh3.1 trillion) recovery plan is a major step towards greater fiscal union and should power growth. Similarly, Germany's U-turn from austerity, as the government embraces a programme of fiscal spending at home, will provide more than 30 per cent of gross domestic product available to offset the pandemic slowdown. “Both measures coincide with more accommodative monetary policy from the European Central Bank,” Mr Atassi says.
This massive fiscal and monetary stimulus should help European equities shine, in turn enticing "global institutional investors to increase their allocation to quality European growth companies with an international footprint", he says.
Mr Atassi recommends looking for companies with sustainable earnings growth and stable business models: “The luxury goods, healthcare and technology sectors all have strong growth prospects.”
Fund manager Invesco’s chief global market strategist Kristina Hooper expects Germany and northern Europe to recover fastest, due to their focus on manufacturing and business services. “In the South and France, the share of GDP is heavier in tourism," she says.
Europe boasts plenty of top companies with global reach. These include pharmaceutical firms such as Germany’s Bayer, Switzerland's Roche and Novartis and Denmark’s Novo Nordisk. Other big names include Swiss food and drink multinational Nestle, and French luxury goods firm LVMH.
Alternatively, you could diversify and spread your risk by investing in a low-cost exchange traded fund that tracks European indices.
Options include Vanguard FTSE Europe ETF (VGK), iShares MSCI Eurozone ETF (EZU), and SPDR Euro STOXX 50 ETF (FEZ). Or you could target the continent’s powerhouse through iShares MSCI Germany ETF (EWG).
Sustainability is here to stay
The Covid-19 pandemic is focusing minds on other threats facing mankind, of which climate change is perhaps the most serious.
Growing numbers are now investing in a socially responsible way, according to environmental, social and governance (ESG) principles, to use the latest term for green investing.
Mitch Reznick, head of research and sustainable fixed income at global investment manager Federated Hermes, says green finance has grown in strength during the pandemic, with record flows into ESG funds.
During the long bull run, critics dismissed ESG investing as a “mere nice-to-have as opposed to a necessity”, he says. “If that were true, we would have expected this wave to break in the first quarter of 2020. Yet green activity has continued to grow.”
Mr Reznick sees evidence of this in unexpected places, with Barclays Bank and French oil and gas company Total committing to becoming net zero companies by 2050. Last week, London-listed oil major BP took steps to clean up its image and pay down debt in the process, by selling its petrochemicals business to Ineos for $5bn. New chief executive Bernard Looney has also set a target of becoming a net zero company by 2050 or sooner.
The pandemic has ushered in a heightened sense of social awareness as companies and policymakers seek to build resilience in healthcare, food and water security, as well as across supply chains, Mr Reznick says.
This is feeding through to investment performance. “ESG indexes are now outperforming the broader market,” he adds.
Managers launched about 100 sustainable ESG funds in the first quarter of this year, up from just over 80 last year, Mr Reznick says, quoting Morning Star research. He says this is “nothing short of astonishing”, given current pandemic disruption.
Separate research from Deloitte shows that in 2017, some 48 per cent of investors applied ESG principles to at least a quarter of their portfolios. By last year, that had risen to 75 per cent.
A wide range of ETFs now invest in ESG themes, but check for any that match your own ethical principles, as all use slightly different criteria.
Vanguard FTSE Social Index Fund Admiral (VFTAX) gives you a diversified portfolio of companies in non-controversial industries, with low of fees of just 0.14 per cent a year. The iShares MSCI Global Impact ETF (SDG) targets companies that aim to further the United Nations' Sustainable Development Goals.
Meanwhile, the iShares ESG MSCI EAFE ETF (ESGD) invests in developed world stocks, while iShares ESG MSCI EM ETF (ESGE) targets emerging markets. There are plenty more and their numbers will grow.