By Peter Lundgreen the Founding CEO of Lundgreen’s Capital
The Covid-19 crisis has been, and still is, a turbulent time for the global economy and policy making. A natural thought is, how will the world look like when the crisis is over? An investor could phrase it as, how will existing megatrends change, will they simply disappear, and will new megatrends emerge?
Ever since the magnitude of the lockdowns and the Covid-19 virus itself became clear, I have considered where the global economy is heading now, but more fundamentally, when the crisis is one day finally through. The summer period often offers some quiet days where I can spend time diving deeper into old and new megatrends, so please consider this as open thoughts based on the current conditions.
A basic factor in my expectations is that the trends which existed before the crisis will be intensified. I argue that this force is stronger than the possibility of completely new megatrends emerging, but one thing is very certain, there will be a price to be paid for the Covid-19 crisis.
I am greatly confident that the solution around the world is higher taxation, where one could argue that this is a hundred-year-old solution. True, but the price for the Covid-19 crisis will mean a jump in taxation, which will limit economic growth at some time, maybe in 2023 and onwards.
This applies to many countries, though some countries might have been less hurt or have managed the negative economic consequences better than others. In this context, wining countries are both from the developed and emerging parts of the world. Countries that exit the crisis with a relatively less stressed fiscal situation are those that can keep superior flexibility and will not explore the limitations from higher taxations will move faster forward.
Many would most likely categorise such developments as new megatrends, which might be right. For me, it is an existing macroeconomic development that will increase the difference between the faster moving A-countries versus B, and subsequently, C-countries (the weakest ones). For years, I have argued for this growing differential, and now I argue that this differentiation will accelerate. This is a consequence of the crisis and is especially important for future investment flows, where I recommend increasing exposure towards A-countries and avoiding C-countries.
I think it is interesting to move directly from the overall macro-level to the micro-level, particularly the private households. I find several developments extremely interesting, where the home office development is on top of everybody’s minds when talking about new megatrends. A structural change will happen, though for me, it is still open where the home-office work balance will be in the future.
Though I observe, particularly in the US, that it seems that office workers want to continue with the work from home solution, and low-paid service sector employees are not returning to the labour market, which is interesting. My consideration is whether the new emerging trend in the US is simply better work conditions, which is equal to a rising cost base for US-based companies – a trend that I find highly conceivable.
Households around the world have naturally ordered endless numbers of food delivery and shopped online to their heart’s content during the lockdowns. None of these opportunities were invented due to the Covid-19 crisis, but again hugely accelerated, the question is what will happen when the world moves back towards some sense of normality? The online shopping would continue its expansion under all circumstances, now it just jumped, though I am excited to see how fast the direct sales from manufactures to the end-consumers will develop. The retailers with physical shops are really forced to re-think the shopping experience. In the meantime, we all learn a new abbreviation, RLaaS (Return Logistics-as-a-Service), which could be a growing business service segment or an emerging megatrend.
A fascinating question is what happens with the food delivery services, because how will households behave when the lockdowns are gone? Will they return to the restaurants or continue to get the food delivered instead? I simply don’t know. This concerns the restaurants, but also delivery companies, though I trust the delivery service companies have all the chances to expand further, as they will convert into last mile delivery/transportation specialists. One good example is to get the pizza delivered as usual, but the same company does the RLaaS, and the pizza deliverer also receives the online shopped goods that the consumer wishes to return to the merchant – certainly, the Covid-19 crisis has accelerated many trends, where I argue that some expected megatrends already are priced too much in the stock markets, but other possible trends are have not been priced in yet.