By Bob Huxford
According to many stock market commentators in recent weeks, any positive developments regarding COVID-19 vaccines should instigate a huge stock market rotation of funds. Investors would abandon the stocks seen as beneficiaries of the pandemic, such as the trendy and apparently grossly-overvalued big tech companies, and pile back into stocks within those sectors hardest hit, such as finance, airlines and non-essential retail.
That was to some extent the case when Pfizer and BioNTech announced on the 9th of November they had developed a candidate vaccine that was found to be more than 90% effective in preventing COVID-19 in participants. IAG, owner of British Airways, has seen its share price rise over 50%, Lloyds Bank is up over 30% and Boeing is up 25%, although the recertification of their troubled 737 Max may have helped too.
Conversely, the leading companies in sectors most expected to benefit from life in lockdown saw their share prices fall on the day of the announcement. Amazon (online retail and cloud services) lost 5% of its value; Netflix (TV streaming services) was down 9%; and Microsoft (cloud services and gaming) lost 2%.
However, that appears to have been pretty much it in terms of downside to date. Amazon’s share price remains almost exactly what it was at close of play on the 9th while Microsoft has lost a further 2% and Netflix has clawed 2% back. The shares of other tech giants such as Salesforce, Alphabet and Apple are all within around 1% of their prices before the Pfizer announcement. Hardly Armageddon for the sector.
What’s most telling is that since this time there has been a further vaccine announcement from Moderna. News of this vaccine candidate, which initial tests have shown to be 95% effective and which isn’t encumbered by the need to be stored at minus 70 degrees Celsius, didn’t negatively affect the share prices of any of the tech giants.
What this would seem to indicate is that the investors don’t expect the elimination of COVID-19 to end the trajectory toward digitisation that the pandemic has served to accelerate. We now know that working from home works, and although we’ll happily head back to the office when all of this is over, working hours will likely be far more flexible with a better balance between home and office. We’ll also continue to host virtual meetings rather than schlep across town or country to see clients. Remote working has introduced the instant mobilisation of workforces and enabled us to respond to clients far quicker.
Businesses have been forced to digitise many other processes. Sales, marketing and supply chains are increasingly being managed through digital channels; call centres and customer services are being aided by robotic process automation; cloud adoption has accelerated; lights out factories are a reality. Businesses haven’t invested in these areas simply to roll things back when we return to normality. Indeed, all these changes lead to improved efficiencies, speeding up time to execution while reducing costs. Digitisation also provides access to data and analytics which can further improve business practises. Those that haven’t adapted will be uncompetitive and left behind.
As for consumers, with non-essential shops closed, even those most resistant to buying goods on the internet will have had cause to make an online purchase at some point during the pandemic. As for the essentials, online grocery shopping has more than doubled since the start of the crisis, with Tesco announcing in September that it had increased weekly delivery slots from 600,000 to 1.5 million.
The same goes for many consumer services. A Deloitte survey of 1,500 retail bank customers showed 20% of them had used an online banking service for the first time during the crisis. Similar increases can be found among consumers for managing their insurance, utilities and telecoms online while one in five families in the UK has taken out a TV streaming subscription since lockdown. According to a McKinsey report from as far back as May of this year, 75% of people using digital channels for the first time indicated they would continue to use them when things returned to normal. How much more entrenched will the use of these channels be now?
COVID-19 hasn’t presented us with an anomalous shift into digitisation; rather it has thrown into sharp relief the fact that accelerating digital adoption is simply the way of things. It may be that we are still only near the start of this transformation and changes to the way we live and work in the years to come will be even more profound than those we’ve experienced in recent months.