7 minute read
‘Things will start to get better’
BY JANICE ROBERTS Editor, MoneyMarketing
“The global economy is improving as the world overcomes the COVID-19 pandemic, so things will start to get better,” says David Shapiro, Chief Global Equity Strategist at Sasfin Securities. Although it’ll be a shaky start as the world tussles with distributing the vaccine, once vaccines become widespread, economies will start to gather steam.
“The pandemic has brought forward the future,” he adds. “The adoption of technology – such as video conferencing and online shopping during the lockdown – has fast tracked the use of technology to levels that weren’t expected for years. When the pandemic passes, the world will move to a new order, rather than looking back or trying to repair what we’ve come out of.”
The crisis that hit the world in 2020 wasn’t a financial one, but rather a crisis that was imposed by governments. “And for that reason, the obligation is still upon them to make sure we get back to where we were.”
While there has been recent speculation in financial markets that the US Federal Reserve might start reducing its bond purchases as early as this year, Shapiro doesn’t believe this will happen. “Governments have learned from past mistakes not to reduce the levels of support too early… They will keepbusinesses and workers on life support until well after the pandemic.” At its January policy meeting, the Fed indicated that it would rather risk erring on the side of removing accommodation too slowly than removing it too quickly, as heightened uncertainty surrounding the COVID-19 pandemic remains, and both the economy and labour market are far from a full recovery. Federal Reserve Chair Jerome Powell signalled that it is premature at this stage to discuss rate lift-off or the tapering of QE asset purchases.
Against this backdrop, Shapiro believes there is room for equities “to go a lot higher”. He also believes that the importance of Joe Biden’s victory in the US presidential election has been largely underestimated. “The damage caused by the Trump administration has really shaken market sentiment, and it’s going to take a long time and even a number of cycles for it to bounce back, but at least it’s a start in the right direction.”
President Joe Biden
STRATOS BRILAKIS / SHUTTERSTOCK.COM
Biden has already said that he will immediately take action to contain the United States’ coronavirus crisis, with science dominating the national response. Joining the Paris Agreement will also be a priority, as well as transforming America’s energy policies, but the rivalrybetween the US and China will continue.
“Biden will remain tough on China,” Shapiro says, “but he’ll seek a multilateral approach with America’s allies against China’s assertiveness – in other words, he’ll talk to them about how they should approach the China issue.”
In terms of headlines this year, a troubling issue will be that of inequality. “A lot of vulnerable countries and vulnerable workers are going to remain hardest hit by the COVID-19 pandemic. A lot of jobs are concentrated among the less skilled. Factory workers, waiters, construction workers – these people can’t work from home, while border restrictions will hurt migrant labour.”
While globally the pandemic has brought several themes to the fore, such as climate and health issues, cybersecurity and workplace diversity, Shapiro says he’s excited by the buzz that the world has seen around technology and the difference it’s going to make in people’s lives.
People are now connected to the world by mobile phones and Zoom, with most finding that they are more productive.
“The question I keep asking myself is: When the pandemic passes, will I ever slip back into my old routine? My answer is no. I think, like so many other people and businesses, I’ve pressed the reset button. The pandemic has shaken up how we live, and how we conduct our lives.
“When repositioning our portfolios, it’s not a matter of whether or not we should buy equities. It’s a matter of which equities we should buy, and who can be the winners and who are going to be the losers. I think we’re in for exciting times.”
He says e-commerce will develop and evolve even further – an example being the new technologies that are bridging the gap between offline and online retail by offering immersive experiences that replicate in-person shopping. In brick-and-mortar shops, customers try, touch, and experience products before buying them – something that e-commerce will now seek to replicate with technologies that include augmented reality.
The global COVID-19 pandemic has also meant that cashless transactions are becoming the new normal. “They’ve jumped to levels that were only expected in about two to five years. When people venture out now, they want to use contact-free systems as they don’t want to touch anything,” he adds. In this environment, mobile wallets like Apple Pay are thriving.
All advances in technology will undoubtedly be made possible with both 5G and Cloud services. “Faster download speeds and seamless transmission are reliant on 5G, while a massive amount of data will be stored in the Cloud.”
A lot of attention will be given to healthcare, he points out, with massive amounts of money having been put into biotech companies last year as they raced to find treatments and vaccines for COVID-19, while there is also expected to be developments in precision diagnostic and treatment equipment, and minimally invasive surgery equipment. “The other big story is renewable energy, which is becoming a lot cheaper than fossil fuel.” Shapiro describes big tech as his main theme. “It’s still dominant and its very difficult for the competition to replicate its scale, infrastructure and ecosystems.” While there is presently unease at the level of big tech’s power, he views this is “just temporary”. Big tech stocks he favours include:
• Alibaba, the beneficiary of China’s fast-growing e-commerce industry
• Amazon, which is positioned to increase its share of online and total retail sales
• Apple, which shows steady growth in iPhone units
• Alphabet, which has dominant internet products and applications
• Facebook, the company that leads social networking worldwide through mobile devices and PCs
• Tencent, whose main source of revenue is mobile and PC gaming, as well as online advertising
• Microsoft, which develops and supports software services, devices and solutions.
One of his favourite tech enablers is ASML, located in the Netherlands. The company gives the world’s leading chipmakers the power to mass produce patterns on silicon, helping to make computer chips smaller, faster and greener.
Turning to the Cloud, he favours Salesforce, a US company that designs and developscloud-based enterprise software for customer relationship management. In the digital payment service space, Shapiro likes Visa, the global payments technology company that enables consumers, businesses, banks and governments to use digital currency.
From a streaming point of view, he believes that Walt Disney, the diversified international family entertainment enterprise, “will give Netflix a huge run for their money as they expand their services”. In the healthcare sector, Philips is one of his choices. “They don’t make fridges anymore – they are a technology company engaged in healthcare and the consumer wellbeing markets.”
Companies in China and the rest of Asia cannot be ignored, he says. JD Com is the second largest e-commerce company in China that has scale and cost advantages, while a Singapore company, Sea, is the largest internet conglomerate in South East Asia. Its business includes gaming, e-commerce, food delivery and financial services, and the company has expanded into Malaysia, Indonesia, Thailand, the Philippines, Vietnam and Taiwan.
Luxury brands like LVMH cannot be overlooked. “There’s a lot more people who have saved and they’re not spending on services, but rather spending more on luxuries.” Travel-related companies that were hurt by the pandemic include aircraft designer and manufacturer Airbus, aircraft engine manufacturer Safran, as well as aerospace solutions company Honeywell. “These companies are exceptionally well run and will come back,” he adds.
“My conclusion is that as vaccines are distributed, we’re going to get out of this mess. And once we do, economic conditions are going to improve, and they could improve dramatically and continue like that for some time.”
David Shapiro, Chief Global Equity Strategist at Sasfin Wealth, addressed a Sasfin webinar last month, entitled Opportunities for 2021 and beyond.
David Shapiro, Chief Global Equity Strategist at Sasfin Wealth
