How COVID-19 Will Change the Investing Landscape

CPPIB says it’s critical for long-term investors to understand ‘generational shifts’ caused by the pandemic.

The COVID-19 pandemic will significantly change the long-term investing landscape, particularly concerning consumer behavior, health care, and mobility trends, according to a new report from the Canada Pension Plan Investment Board (CPPIB).

Global crises such as world wars and the COVID-19 pandemic can cause national priorities to change, drive new alliances, and reshape the geopolitical landscape, said CPPIB.

“For long-term investors, it is critical to understand these generational shifts,” according to the report. “They signal where demand is likely to reside in the future, where the new sources of innovation and disruption will come from, and how changing policies and regulations will reshape economies, all of which can have direct impact on a global portfolio.”

One of the most significant changes to consumer behavior, the report said, will be the greater adoption of ecommerce among older consumers. In a reversal of pre-pandemic trends, older consumers, who are at a higher risk of contracting COVID-19, say they plan to increase ecommerce adoption across all categories. Meanwhile, younger consumers, who have grown tired of being cooped up, have indicated an increasing desire to return to stores for more discretionary categories.

“Confined to their homes for months and subjected to a rapid reordering of their perceived health risks and economic prospects, consumers are emerging from a shared trauma that will change their priorities and concerns for years to come,” said the report

According to CPPIB’s research, online grocery usage has surged during the pandemic, with 31% of US households using the services in March, up from 13% in August 2019. Retail giants Amazon and Walmart had an enormous advantage over smaller retailers that had more limited selections and unscalable infrastructure. CPPIB also said free and reliable delivery, which are the biggest factors in consumer uptake, also play in the bigger retailers’ favor.

The report cited telehealth as another pandemic-driven trend that will change the investing landscape. While only 20% of the population in the countries the report looked at used telehealth, one-third of those who tried it did so for the first time during the pandemic.

The workforce’s acceptance of remote working during the pandemic will also have a significant impact on long-term investing, according to the report. A trend of remote working that was slowly building before COVID-19 accelerated rapidly during the pandemic, with approximately half of workers in China, the UK and the US working from home, up 10-fold from 5% or fewer. The report said both employers and employees found the arrangement more satisfactory than expected, with several large companies, such as Facebook, Bank of Montreal, Tata Consultancy Services, and Optus announcing long-term plans to increase work-from-home arrangements.

“We expect a long-term uptick in remote work, though more in the form of flexible schedules that allow for a few days per week at home, rather than a wholesale abandonment of the office,” said the report, which added that companies enabling remote work, automation, and sectors that focus on office sanitation are likely to receive a boost from the pandemic.

The report also said the remote working trend will have significant collateral effects, such as a possible population shift away from large urban centers. With greater geographic flexibility in employment, employees looking for more space and fewer crowds will migrate farther from the city center, according to the report, which said this will likely accelerate the growth of so-called “tier 2 cities” in the US and Europe.

“Managing risk while recognizing true opportunity is an essential task for the long-term investor,” the report said. “It is what enables us to fund the enterprises that will lead the world to a safer, more sustainable future.”

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