Futurology invites satire. By the year 2000, we were meant to be zooming around cities using personal jet packs. But just now, the task of predicting what lies ahead could hardly be more serious.
The impact of coronavirus will be felt across offices, retail, exercise, nutrition, energy and global poverty. In some cases, the pandemic has interrupted trends, possibly changing their course permanently. In others, it promises to intensify changes that were already under way.
In the property sector, nobody knows how long-lasting the switch to home working and online shopping will be. But billions of pounds are riding on the answer. Lex’s guess was that offices will still be in demand to project corporate status and bring employees together. Office specialist British Land has an unexciting but sound future.
But bricks-and-mortar shops will lose out, as eventually half of retail spending moves online. The prospects of shopping centre owner Hammerson are dire. Still, Primark, a subsidiary of Associated British Foods that does not sell online, is doing surprisingly well. Its share price rose 5 per cent on Thursday on news that in mid-June, sales in England and Ireland were actually higher than last year. Do not extrapolate to other retailers, Lex warned. Discounts will need to be higher at pricier rivals.
Food delivery, like online retail, has boomed in lockdown. Across the US, orders rose two-thirds in March, according to market researcher NPD Group. That has burnished the attraction of US start-up Postmates to Uber, which is preparing an offer. A deal would remove one of the four big US competitors. But it remains hard to make money in such a low-margin, high-volume business.
Another start-up to capitalise on lockdown trends is Mirror, a New York-based home workout equipment company. Yogawear maker Lululemon has agreed to pay $500m for it, in a deal it said would bring “personalised in-home sweat”. But there is plenty of competition. Lex reckoned the price fits the inflated tech fitness trend.
Mapping out possible futures is a long-established practice at Royal Dutch Shell, a pioneer of such “scenario planning”. On Tuesday, the Anglo-Dutch group announced its latest outlook — $60 a barrel long term — and cut up to $22bn from the value of its assets. Lex reckoned the writedowns would keep on coming. The pandemic is not only likely to reduce demand for oil and gas but also accelerate the global shift towards cleaner fuels.
One use of renewable energy is to produce hydrogen. Promoting such applications is expected to be part of the EU’s green economic recovery deal. Its role in transportation is promising, said Lex. Fuel cells using hydrogen are better than batteries for large electric vehicles, such as trucks and buses.
The damage inflicted by the pandemic justifies a relaxation of the new car emission standards that Brussels has introduced, some lobbyists for the car industry argue. But automakers would be unwise to count on it. That is a big challenge for Daimler which Lex reckoned was among the worst-placed of its peers to cope with the challenges assailing the industry. Nissan, with a debt-to-equity ratio that swelled to nearly 180 per cent in the year to March, is also struggling.
The audit profession is another area where the pandemic is likely to exacerbate existing problems. The requirement to work from home in lockdown is likely to have made fraud easier. That was one observation Lex offered as it considered the pressure on accountancy firm EY following its audit of now insolvent payments processor Wirecard.
Covid-19 has also intensified existing trends in the bond market. Long-term yields have collapsed to zero, or below. Nothing lasts forever, but there are dangers in anticipating a bounce back. For years, short-sellers tried to attack the Japanese government bond market, expecting yields to rise there. But the collapse in bonds never came. Shorting JGBs won the moniker “widow-maker”.
Inevitably, the impact of the pandemic will depend on its duration and any medical advances. Gilead Sciences’ treatment remdesivir is not a cure, but it is capable of reducing hospital stays by four days. Its price at $2,340 for a five-day course reflects the implicit value provided but is more than would be stomached in better times, said Lex. Other better treatments may come through. There are 700-plus trials under way.
Meanwhile, it does not take a futurologist to predict that societies have to learn how to live with the virus. The challenge is to ensure, where possible, the changes it brings have some positive value.
Enjoy the weekend.
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