In one of our previous articles, we compared the performance of traditional stock markets since the beginning of the Covid-19 pandemic to that of the total market cap of crypto assets. We noted that the latter had shown more resilience. Since then, the gap in performance between stocks and crypto assets has only widened. The main reason stocks, in general, are not doing well compared to crypto assets is that most production processes in the world still depend on people being there. Since the main response to Covid-19 has been through mandating or encouraging social distancing at the society-wide level, it has disrupted many production and consumption processes. Especially perturbed have been economic activities where production and consumption involving physical presence coincide (travel, movie theaters, catering, etc.). Even though the pandemic situation has undoubtedly started improving in most countries, they have not yet reached levels that lead to believe they are out of the woods, even though there are more optimistic takes. In simpler terms, this means the majority of the population in most countries and regions within them remain highly susceptible to subsequent waves of infection. The obvious risk is that many of the economic activities that suffered the most during the first wave will have to be put on hold again if widespread social distancing remains the preferred response. However, even as the general prospects for stocks look bleak it is such a broad category that some are bound to thrive . There are at least two types of businesses whose stocks hold promise: those who can benefit from the pandemic , and those involved in cutting-edge R&D activities. Let us consider each of those in turn.
Industries that could be directly spurred by Covid-19
Humans tend to adapt to whatever it is that happens in the world, and Covid-19 is no exception. As a consequence, certain activities or ways of doing them are favored by the pandemic conditions, which bodes well for companies successfully pursuing them. The first category of such businesses is related to moving consumption online in the broad sense of the word. Eating out or physical shopping has been largely replaced by ordering food online. Even regular socialization gave way to video chats. Many activities do not contribute to consumption directly but are valued on the market. They often involve people working physically together or at least meeting from time to time. Video chatting tools have also allowed some of that work to continue to a much larger degree than it would have been possible without them. Not surprisingly, some of the biggest corporate winners from the pandemic so far have been Amazon, Zoom, and Netflix. The Covid-19 pandemic also revealed the lack of preparedness of most societies for handling severe and widespread viral diseases. Most countries have been incapable of quickly increasing the capacity for testing their inhabitants for infection, and there is still no truly effective treatment or vaccine. However, a lot of businesses have been working round the clock to help redress this unfortunate situation, often making massive, risky investments without any guarantee of success. For instance, American company Gilead had invested into boosting its capacity to produce the drug Remdesivir even before randomized clinical trial results validating its promise as a moderately effective treatment. Swiss pharmaceutical giant Roche recently announced the investment of $437 million into a testing site in Germany. These and similar companies are anticipating that Covid-19 is not going to go away soon , even if the summer temperatures could temporarily stem its spread.
Other promising industries
Covid-19 has not stopped innovation, and digital industries like blockchain or AI are not the only ones in which progress continues. AI has a lot of exciting potential. Bio Fund’s general partner Vijay Pande insightfully said that AI industrializes discovery itself. Especially when researchers are dealing with incredibly complex stuff like sophisticated chemical molecules. Including the search for potential Covid-19 drugs. Two of the most promising areas of not-primarily-digital innovation are drone delivery and longevity technology. Drone delivery is a very promising field The main obstacle is not something inherent to the technology but the reluctance of airspace regulators to allow extensive use of drones for various tasks. This has led to the paradoxical situation where relatively poor African countries like Rwanda and Ghana have become world leaders in drone delivery development and innovation. It gets even more awkward when one learns that the company that has been at the center of this unlikely development — Fly Zipline — is headquartered not in Rwanda or Ghana but the U. S. The Covid-19 pandemic, however, could motivate governments in countries like the U. S. to relax the regulatory restrictions on drone use. The key service that Zipline has been successfully rendering in Rwanda and Ghana has been the rapid delivery of medical supplies. The current situation makes this option attractive. Both from the social distancing perspective and because drones could rapidly deliver critical supplies like personal protective equipment. Zipline has been working with the U. S. regulators to bring its service to the country. And once accepted for medical delivery, commercial drone use is likely to quickly spread to other areas. Another industry to consider is the nascent but quickly developing longevity space. It is, admittedly, much more speculative than drones or almost any other industry. Yet, if it succeeds, it could transform the world and our lives more than anything else, perhaps, ever did. . As late as 20 years ago, almost no one seriously considered the idea that the human lifespan could be prolonged dramatically.ging was seen as inevitable and not as just another condition that could potentially be treated. The elderly have become main clients of the healthcare industry but the medical interventions have been focused on the chronic diseases of aging like coronary heart disease and Alzheimer’s. However, an avalanche of research and development is about to change that. Treatments like senolytics, rapamycin, and metformin have shown to increase lifespan and healthspan in animals and are being or will soon be tested in humans. Most astonishingly, a recent study has hinted at the reversal of biological age already achieved in living humans. Why there is a long way to go between most of the longevity research and commercialization, there are already well-regarded companies that are far advanced. Perhaps, the most prominent of them is AgeX Therapeutics that has recently been covered by Andy Jones on Seeking Alpha.
The long term view
The pandemic is likely to have long term implications, and it is possible that the world economy will take several years to recover from this. But if you take the long-term view, what does it look like? Historically, stocks have gone up and down, but have pretty much always recovered. Over the past 26 years the MSCI ACWI IMI index (that covers 99% of the stocks in the world that you can invest into) has had net returns of 6.39% annualized. Some years it went down 42% and some years up 36%. There is little doubt that this year is going to be a bad one, but if history is anything to go by, it is likely to recover.
In summary, at the present difficult moment for most of the world’s economies, stocks, in general, do not appear to be the most promising investment category in the short term. However, potential interesting opportunities exist in certain sectors. Long term, If you are generally optimistic and want to be “long on the world”, there are plenty of good funds that will allow you to track the entire world stock market.