9 December 2020

A Glimpse of the Future

Markets have been encouraged by the advent of the coronavirus vaccination programme and unsettled by the prospect of a no-deal Brexit.

I was fortunate enough to attend the JM Finn online investment conference which looked at several industries and how they might develop in the wake of the pandemic induced economic crisis. Very good it was too, with some interesting views on what differences the upheaval of the past year might have for the future. Technology has been a clear winner, while a greater commitment to spending on healthcare now seems inevitable. Retail has been shaken up by the lockdowns imposed to control the virus, but not all the news for our high streets is negative. Shopping locally is on the increase and we can expect online and physical stores to work much more closely together.

Amongst the interesting snippets shared by speakers was the fact that online retail sales had crept up over the past decade from 5% of total sales to just under 20%. Until the start of 2020, that is. With enforced self-isolation and the closure of non-essential shops, sales online leapt to over 35% in a matter of weeks. The easing of restrictions in the summer saw this figure ease to around 30%, but with a fifth of online shoppers never before having bought online, it is clear a dramatic shift in our buying habits has taken place. 

But to return to the current situation, markets have been encouraged by the advent of the coronavirus vaccination programme and unsettled by the prospect of a no-deal Brexit. With the Prime Minister heading off to Brussels for face-to-face discussions with the President of the European Commission, it would be pointless to speculate what the final outcome might be, but in the meantime both shares and the currency are sitting on the fence.

Whatever the outcome, we can expect sterling to react – upwards on a deal, but sharply down if one is not forthcoming. The Footsie is harder to gauge. While domestically focussed companies can be expected to suffer if no deal is the result, the more internationally based benchmark index of our 100 largest companies could actually benefit from a fall in the pound, thanks to the significant amount of foreign earnings these businesses enjoy.

The arrival of “V” Day has had more of an emotional impact than a financial one. While this may indeed mark the beginning of the end for the disruption caused by the pandemic, it will take many months for life to return to anything like the normality that existed before. And a full return is most unlikely. For example, while a return to conventional shopping will take place to some extent, it is clear that Covid-19 restrictions has accelerated the trend to buying on the internet and many will continue to shop online. Those businesses unable to adapt to these new conditions will not survive. Witness the demise of Debenhams and Arcadia. The world will never be quite the same again.


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