Financial centre forecast: It’s all about green and digital
News•Business• 22.07.2020 • Olivier Goemans/Banque Internationale à Luxembourg
Olivier Goemans, head of investment services and innovation at Banque Internationale à Luxembourg. Photo: BIL
During the first half of 2020, the pandemic plunged the world economy into the worst recession since the 1930s. In the second half of the year, economies will begin to rise from their ashes after the period of containment, supported by particularly generous aid from banks central and government agencies, says Olivier Goemans, head of investment services and innovation at Banque Internationale à Luxembourg.
The fall has been so steep that the lost wealth (GDP) is unlikely to be recovered until the end of 2021, and corporate profit growth will likely remain negative in 2020. In such an environment, a generalist approach to selection of actions is inappropriate.
Considerable gaps will emerge between the winners and losers of different industries, and the companies that were leaders in their industries yesterday are unlikely to be the leaders in tomorrow.
Investors need to break down the fundamentals by scrutinising balance sheets and income statements to identify quality companies across different industries that are free from debt and have strong cash flow.
In order to prepare their portfolios for the future, where possible, investors should consider trends such as sustainability and digitisation, which have accelerated with the covid-19 epidemic and are expected to continue.
The pandemic has put a spotlight on sustainable investing, which includes environmental, social and governance (ESG) factors in analysis and decision-making. The health crisis has reminded us that we are at the mercy of nature.
For years, scientists have urged us to move away from fossil fuels in favour of cleaner alternatives.
As governments attempt to rebuild their economies, we now have a unique opportunity to do it the right way. The European Union’s Green Deal plans to invest billions of euros in energy transition, while the European Central Bank plans to get rid of the “brown” bonds (issued by polluting companies) it holds.
The shift to a greener economy will affect all sectors and offer multiple opportunities, whether for construction companies, semiconductor manufacturers and many more.
Issues such as access to healthcare and social safety nets, on the other hand, underscore the importance of the social dimension of ESG investing. In this context, ESG indices have outperformed since the start of the year, and flows to this type of fund remain strong.
Continuity of services
At one point in the health crisis, up to a third of the world’s population was under containment measures. But the world has remained within reach, as businesses, schools, universities, retailers and even museums quickly reorganised their businesses to offer them online and ensure the continuity of their services.
Turning back is now very unlikely. Big data, artificial intelligence, the internet of things and “everything online” will be an integral part of our new normal. However, we are arguing for a more nuanced approach than outright buying of tech flagship stocks.
It is, indeed, possible to detect value in smaller players in different sectors who are rapidly digitising their activities, such as insurers, payment companies and other logistics companies.
Conversely, those resistant to digital transformation run the risk of being relegated to the rank of museum piece.
Originally published in French by Paperjam and translated for Delano