It’s the end of broadbased industry success stories, warns Fidelity

Sector-wide gains ‘increasingly unlikely’ and coronavirus impact on companies and economies ‘highly varied’.

The analysts also said investors should expect the US dollar to decrease in strength relative to other currencies over the medium term.

Investors searching for returns in a post-COVID world should remain focused on technology and financial industry equities, but be aware that the pandemic has created an environment of “winners and losers” where sector-wide gains are increasingly unlikely, Fidelity analysts have said.

In a conversation with investors and journalists on Thursday, Fidelity’s Asia Pacific CIO Paras Anand said that the unique economic landscape created by the pandemic and the unequal application of fiscal policy by governments across the world seeking to stimulate their respective economies would result in some companies performing better than comparable competitors.

“The impact on individual companies, individual economies is going to be highly varied,” Mr Anand said, noting that the pandemic had lifted video conferencing software Zoom’s market capitalisation beyond that of the world’s seven largest airlines.

“One form of central bank intervention looks very much like another form of central bank intervention.

“However, when we look at the scale and structure of fiscal stimulus packages globally, we will find that they will be highly varied.

“We are going to be in an environment where trying to have the shortcut observations of things getting better or worse at the margin is going to be less helpful than really, sort of, digging that next second and third level into the detailed action actually happening at individual companies and individual economies.”

Mr Anand said that some things to look at when examining companies in the technology, financial and communications industries were valuation - despite pricing being less of a predictor of growth in the last market cycle - and regulatory risk.

“It is critically important for investors to consider valuation as part of their investment strategy,” Mr Anand said.

“The reason that I emphasise that is because for most of the last decade, valuation...has in fact been a very poor predictor of future returns.

“I think that as we navigate the cycle in front of us, having an awareness and attention to valuation and the price of securities in the context of their long-term intrinsic value, I think becomes important for investors to have at the heart of any investment strategy they choose.”

Stay aware of divergence

Speaking on the same call, Fidelity portfolio manager George Efstathopoulos said investors should remain conscious of the “divergence” between market activity and economic reality.

“We are seeing a meaningful divergence between global economic fundamentals where huge uncertainties lie ahead...and financial markets which are pricing an increasingly strong recovery,” he said.

“We think the driving force behind this growing wedge is the massive injection of liquidity that we have seen coming from central banks globally.

“We are becoming increasingly nervous of the disconnect between the economy and markets and also how quickly that pendulum has shifted.”

Mr Efstathopoulos warned that if the “V-shaped” economic recovery that has been forecast by some analysts did not eventuate, “temporary” unemployment would become “permanent” and bankruptcies would increase.

The analysts also said investors should expect the US dollar to decrease in strength relative to other currencies over the medium term, and for additional fiscal spending and the gradual reversal of globalisation to create inflationary pressures in the medium to long term.

There would also be a fair amount of “creative destruction” on the part of companies, Mr Anand said, with companies on a strong-post COVID footing preparing to go on an acquisition spree and assets to pass “from weak hands to strong hands”.