Corona Virus – Covid 19 – An Enemy that Locked Down the entire Planet ! But created new Investment Opportunities. ?

By Dr. Rebel Hanna

Doctor of Business Administration - Ph.D. International Business, Researcher in Management Sciences - Professor and Lecturer

“Money can never make people but People make Money and Wealth”.

Rebel Hanna - Strategic Management

1.   Introduction

When the first case of Corona Virus was detected back in November 2019, none of all the leaders was imagining that almost all the countries will be in a total lockdown. No one was even expecting that almost all airports will become parking for the fleets of airplanes instead of being hubs for travels for passengers. The busiest of metro stations were never expected to be victims of silence.

Capital markets were expected to improve, economy of some emerging markets and countries to surge and in general, the year 2020 was supposed to be a promising year.

Today, after more than 120 days, we witness a collapse at all levels, economies, countries, capital markets and as researchers, we notice a chaos in all aspects.

The Corona Virus unmasked a reality, that the G20 countries failed since the second world war till the year 2020 to build a solid and reliable healthcare system.

The biggest problem is in the way information is communicated and the way all countries, governments and even the World Health Organization are dealing with the situation. The largest majority of the population across the planet are under the impression that the lockdown and the social distancing and all the measures taken are for a certain period of time while these authorities will be able to destroy the virus. Which is a big mistake in the perception and in the communication.

There is a fact that we need to accept, the Covid-19 is there to stay and to live with us. Maybe other viruses will appear and hit the humanity as well.

This fact will create new opportunities at different levels in order to be able to adapt quickly with the new requirements, and the most important is the Health Safety and Security.

In this article I will address some of these opportunities that are expected to reshape the capital markets according to the change in investors’ appetite.

I will suggest some tips for investments with expectations taking into consideration the different investment opportunities.

2.   The Health care system, the biggest failure of the 21st century

Since the end of the second world war till early 2020, all political systems were putting the entire attention to the race for the state of the arts arms and nuclear weapons.

The Cold War nuclear arms race between the United States and the Soviet Union is the most relevant example of the 20th century arms race. The use of nuclear weapons by the United States against Japan that lead to the end of the World War II led to a similar successful effort by the Soviet Union to acquire such weapons, and this was followed by a long-running nuclear arms race between these two superpowers.

The end of the Cold War by the early 1990s appeared to have ended that arms race. However, In 2019, the United States formally withdrew from the 1987 Intermediate-Range Nuclear Forces Treaty by which the United States and the Soviet Union had agreed to eliminate intermediate-range and shorter-range land-based missiles capable of carrying nuclear weapons, and leading to a new era of arms race, it could be nuclear, biological or any type of race, but all funded by the tax payers and for the same reasons: protection of existence, rights and culture.

The Healthcare in the United States is provided by many distinct organizations. Healthcare facilities are largely owned and operated by private sector businesses. 58% of community hospitals in the United States are non-profit, 21% are government owned, and 21% are for-profit.

According to the World Health Organization, the United States spent $9,892 in 2016 on health care per capita, and 17.2% on health care as percentage of its GDP in the same year.

Healthcare coverage is provided through a combination of private health insurance and public health coverage. The United States does not have a universal healthcare program, unlike some other countries.

People aged under 65 acquire insurance via their or a family member's employer, by purchasing health insurance on their own, or are uninsured. Health insurance for public sector employees is primarily provided by the government in its role as employer, and Americans now spend twice as much on health care as they did in the 1980s with an average cost of 5,000 USD per person, which converts the health to a tradable commodity rather than being a Necessity and a Right.

Peter G, Peterson Foundation published on March 2nd, 2020 a very significant chart showing that circa $670 Billion are spent on Defense, and what about Health?

in Russia, the second party of the race, Healthcare is provided by the state through the Federal Compulsory Medical Insurance Fund, and regulated through the Ministry of Health.

The Constitution of the Russian Federation has provided all citizens the right to free healthcare since 1996.

There are about 9.3 beds per thousand population—nearly double the OECD average.

Expenditure on healthcare was 6.5% of Gross Domestic Product, US$957 per person in 2013. About 48% comes from government sources which primarily come from medical insurance deductions from salaries. About 5% of the population, mostly in major cities, have voluntary health insurance.

After the end of the Soviet Union, Russian healthcare became composed of state and private systems.

Starting 2000, there was significant growth in spending for public healthcare and in 2006 it exceeds the pre-1991 level in real terms. In addition, life expectancy increased and infant mortality rate dropped from 18.1 in 1995 to 8.4 in 2008. Russian Prime Minister Vladimir Putin announced a large-scale health care reform in 2011 and pledged to allocate more than 300 billion rubles ($10 billion) in the next few years to improve health care in the country. He also said that obligatory medical insurance tax paid by companies for compulsory medical insurance will increase from current 3.1% to 5.1% starting from 2011.

In May 2012 President Putin signed the May Decrees which included a plan to double the wages of healthcare staff by 2018 and gradual privatization of state health services.

President Vladimir Putin brought back better funding to the state-owned healthcare system. The state healthcare system greatly improved throughout the 2000s, with health spending per person rising from $96 in 2000 to $957 in 2013.

The Corona Virus highlighted the impact of the low attention given to the healthcare system, and the list of needs is growing every day.

Corona Virus and the Covid-19 pandemic created new needs and increased the demand on some existing products and services and some new ones.

The most important question that comes to the mind of everyone today, How to fill the gap and Who will fill the gap between the demand and the Supply?

In this article, I will try to add some practical thoughts and tips that can put the light on the new opportunities coming in the near future that may rejuvenate the capital markets for the coming decade.

3.    The collapse and recovery of the capital markets. What happened and what will happen?

All countries, governments and nations went in an almost total lockdown which directly impacted negatively the economies on short, mid and long term. Economists are more and more discussing the impacts and effects of the lockdown on all industries and economies.

The lockdown was a decision taken to control the spreading of the Virus by (i) isolating the country and closing all the borders for inbounds to avoid importing the virus from other countries through inbounding virus transporters and (ii) isolating individuals through social distancing, working from home practices, closing almost all companies to reduce as much as possible the contact between individuals, hence reducing and controlling the spread of the virus within the communities.

Airlines and Tourism are the two most affected victims of the lockdown decision. Business performance and productivity of almost all the industries is the second victim. Education is definitely the third victim. Restaurants are closed, theatres and cinemas are closed, sports events are postponed till further notice, retailers including the most famous brands may bankrupt, even financial services and especially banks are severely affected and their profit margins are shrinking, and the list of victims is much longer.

Needless to mention that the direct effect of the lock down on individuals is Unemployment, and in fact, unemployment ratio is increasing and may increase more and more with time.

As a result of the effect of the lockdown on economies, the investors’ appetite shifted from having long or even mid term protected or secured investments to having simply cash in hands. This change in the investors’ behavior comes from one side, the fear of not being able to pay for their healthcare bill in case it is needed, given the failure of the healthcare systems to cater for that essential need, and from another side, the fear of mass bankruptcy in the markets and consequently the substantial loss of their investments.

This sudden change in the investors’ behavior has created a mass supply of financial products versus a mass demand on cash. So, the Cash became the KING in this period of time. All investors wanted to secure access to cash without any compromise regardless the cost. They exited their investments at any price to secure the cash they need to use for spending on living and on health. Regretfully, none of the governments was ready to give enough comfort for the investors to maintain their investments without considering the exit to cash strategies.

Earlier this year, and as a reaction to the big shock in the capital markets, Central Banks, Federal Reserve, Governments, all offered stimulus to absorb that financial shock and to sustain the economies. This reaction was to mask the failure in creating a reliable and sustainable healthcare system based on safety and security.

On another hand, these big players cannot inject cash indefinitely, and they will never be able to support unemployed people and SMEs. Economy is a cycle, and if this cycle is broken, it will collapse.

Accordingly, these measures taken, in my opinion, are a short bridge allowing only to cross the current Covid-19 crisis to the next level.

In the opposite side people cannot stay indefinitely in confinement and quarantined, and companies cannot stay indefinitely inactive. This will lead to a social collapse.

All the immediate measures that were taken are short term that require to be backed by mid and long-term measures to recover the economies and resume the normal life.

The recovery and going back to normal life will open new businesses and investment opportunities to fill the gaps that the Covid-19 created and will require to find the remedy to the deficiencies detected in the healthcare system.

The Covid-19 pandemic revealed to the entire humanity that political systems don’t care about mankind, they only care about protecting their interests and increasing their level of control to remain in power either through their parties, their monarchies or political blocks.

The events of the pandemic are confirming one and only one given that I always repeat while lecturing in Strategic Management.

“Money can never make people but People make Money and Wealth”. (Rebel Hanna)

The lockdown resulted in huge losses to different industries, although the advanced technologies, the Artificial Intelligence and the Robotics, the Human individual remains the center and the key for the success of any business.

To fight the pandemic, only the human individuals were the front liners.

Finding sustainable and reliable healthcare system based on safety and security of the mankind is the name of the game.

It is time for governments to rethink their strategies and to consider the Human aspect which is the Only Sustainable and Valuable Asset that deserves constant investment.

Health, Education, Security and Shelter are the most important valuable investments that secure Economic stability.

I am not inventing any new theory, I simply refer again to the theory of Maslow and the famous pyramid of needs, that confirms all what we witness today.

On another hand, an effort should take place to ensure that what happened today will not happen again tomorrow, and investors and businesses are learning from the events and will be looking at all the new opportunities that the Covid-19 pandemic have created.

These opportunities are basically related to Pharmaceuticals, Medical Equipments, Healthcare Facilities, Healthcare Security, Information Technology, Financial Services and Education.

These opportunities will have definitely positive impact on other industries and specifically will reshape and affect positively the industries that are currently suffering from the results of the Covid-19 pandemic especially Travel and Tourism. 

4.   Why these opportunities are the future investment strategies?

Getting back to normal while ensuring health safety and security will be a Global concern to all nations, governments, countries and investors will be spending lot of efforts, energy and research to avoid what Corona Virus caused at all levels.

The Covid-19 consequences in all aspects confirmed without any doubt that Creation of Wealth be it at individual, business, group or national level, it happens only from Sustainability. Sustainability refers to continuity without to any interruption. Nothing should interrupt the economic life cycle to ensure sustainability.

In Strategic Management Science, we refer always to the concept of Sustainable Competitive Advantage as being behind the creation of wealth. This concept of Sustainable Competitive Advantage is based on Proactiveness and Forecasting the needs rather than reactiveness and going with the flow.

The Covid-19 has created already that competition and all individuals, companies and nations are today either already in the race or preparing to join the race very soon to find solutions for a long list of needs that were identified before and during the pandemic and what may be identified after the Covid-19 pandemic.

The most important for the sustainability today is to make sure that any similar situation in the future or another Covid-19 attack will not impact anymore that much severely the economies and will not interrupt the life cycle as it happened since early 2020 to date.

For all these reasons the development of specific industries becomes a priority and a must such as Medical Industry, Information Technology Industry, Communication Industry, Travel Industry, Tourism Industry, Robotics and High-tech Industry with a new emerging industry that may be the major player which is the Research and Development Industry.

4.1.        Research and Development Industry

As mentioned previously the race has already started, and lot of industries and searching and researching to come up with innovative solutions in different areas. To be proactive, and to win the race and enjoy a real sustainable competitive advantage, companies need to invest substantial budgets in research and developments, which will become a serious challenge for some companies if they need to develop and grow quickly. Time constraints, budget and availability of funds, cost optimization, availability of specialized and qualified researchers, all these are challenges that may slow down the research process and consequently slow down the development process. Companies will be considering outsourcing this very important function to specialized research and development companies in order the accelerate the process of research while focusing on the core of the business, optimizing the cost and creating a balance between these challenges and the confidentiality and privacy.   This will be creating an opportunity for companies specialized in research and development to fold their sleeves and step in the market aggressively to offer these services of research and development to the companies who are in need of such high level of service. These companies will be remunerated very high while the cost of their clients will be shared hence optimized. In specific projects, such research and development companies may consider receiving an additional royalty for a certain period of time from their clients.

4.2.        Medical Industry

The Medical Industry includes Pharmaceuticals, Medical Equipments and Medical Supplies. All Pharmaceutical companies are today extremely busy to find, develop and test treatments and vaccines for the current Corona Virus, and this is a long lasting and complicated process that cannot reach its lucrative end unless it is licensed by the Healthcare Authorities.

Still this is the start. From this date onwards, Pharmaceutical companies will not simply react with the existing health conditions, they need to monitor much closer the events and be proactively ready to any unexpected new event that could affect the health of the mankind. More aggressively, they need to rethink their strategies and focus more on animals since they might be the source of threat for the mankind. Pharmaceuticals should step more into research and they will be more and more busy to increase the level of readiness. This includes research and tests on existing treatments and vaccines, their side effects and their ability to react with forecasted challenges and threats.

The pharmaceutical companies are in fact the real first line of defense in the healthcare security and safety system. Vaccine are the real weapon to face any pandemic or epidemic and they will be more and more needed to avoid the fatalities or at least to reduce their occurrence. Other treatments will be as well needed to treat and cure infections and effects of any future pandemic.

Another opportunity is related to medical equipments. The current pandemic confirmed without any doubt that none of the countries took into consideration the real need in terms of number of hospitals, number of beds per capita, number of Intensive Care Units per capita that include the necessary equipments needed in the ICUs, such as respiratory systems, reanimation systems, and many more.

If there is really a serious intension to be always ready and increase the health safety and security quality to the highest level, we should witness thorough studies to set realistic standards for the numbers of hospitals, beds, ICUs which will result in a serious increase of demand for the different needs to reach the desired levels.

Laboratories equipments are as well part of these necessities.

That increase in numbers of Hospitals, beds, ICUs, Laboratories and other medical service providers will result in an increase of the need of Medical staff such as Medical Doctors, Nurses, Lab Technicians, Lab Researchers and many other disciplines that universities need to cover, which will create an indirect demand hence increase of the education especially in medical schools.  

4.3.        Information Technology Industry

With today’s changes, Information Technology will be the main pillar to face all the new challenges. Lot of new needs in hardware and software including Artificial intelligence needs and other creative solutions will be required to support all industries in their endeavors.

Information Technology companies will play the major role to accelerate the development processes and create the competitive advantage. 

All industries, such as but not limited to, Medical, Travel, Healthcare, Insurance, Food and Beverage, Education, Banking, etc… will need more and more to use the technology to increase the levels of health safety and security and reduce their operational risk to maintain their sustainable competitive advantage, accordingly, the demand will increase and the value of Information Technology Industry will increase more and more.

4.4.        Robotics and High-tech Industry

Social distancing will become a culture, and alternatives are to be found in all areas. We will witness an increase of demand in Robotics and High-Tech equipments allowing to maintain as much as possible a certain level of social distancing while keeping the high quality and safety of the services that are delivered. Already delivery through drones is becoming a trend, robotics in hospitals, hotels and airlines industries is of high demand, especially when it is related to cleaning, sanitizing and disinfecting premises, furniture and other materials. Robotics will become very soon a main pillar in the success of majority of businesses and the main driver for a sustainable competitive advantage.

This will create a substantial demand on all the solutions and equipments develop by robotics and high-tech firms which will directly impact positively the market value of these companies.

4.5.        Tourism Industry

Tourism industry will be as well impacted positively, maybe slower than the other industries, but on the long term, people would like to compensate the time that they lost for confinement, and all the travel lovers will look at tourism in a different perspective, based on balancing between the health safety and security and the pleasure of traveling and enjoying their planned vacations be it summer or winter or occasional or seasonal.

Travelers will look at all the safety measures that are implemented by airliners, airports, hotels, transportations services, restaurants, museums, theaters, etc… and this will lead more and more to very finetuned and sophisticated demand.

There will be a come back to the tourism but in a different shape and different culture.

This demand will increase by the time especially with the era of the social media where happy travelers posting their successful journey will roll the information among their network and this will become quickly a snowball that will increase the demand on very well designed tours and journeys and consequently increasing the value of the industry in the market.

4.6.        Communication industry

communications industry, broadly defined, the business of conveying information. It covers television and radio broadcasting, networks, publishing, advertising, social media, telecommunications, public relations, computer databases, and other information industries.

Nowadays, people are becoming addicted to communication in all aspects and means. They look more and more after uninterruptible network, social media, information and search engines, and may more.

All these conditions will be amplified due to the newly developed awareness of people regarding the right vs the fake information, the genuine vs the fake sites, the correct vs the wrong decision which is based on the quality of information and not anymore on the quantity, which sometimes confuses the people.

Speed and access to accurate information will be as well of high demand from the consumer side, and advertising and informing the consumers will become one of the highest concerns of the different industries, this will lead to an increase of the demand on Digital Marketing and all its underlying components.

Communication industry will become a strategic and unavoidable choice and the increase of the demand will increase the value of this industry in the market. The important factor is the direct relation of this industry with the Information technology industry and this positive correlation will have its additional impact on the communication industry.

5.   My Conclusion

We all admit that majority of the capital markets reactions are much more emotional rather than based on rational, however, as mentioned previously, consumers and investors will consider seriously all the changes that Covid-19 brought to the different industries and will look without any compromise to the Health Safety and Security while ensuring that the investments are protected by sustainability and continuity.

Majority of the above mentioned industries will have sustainable competitive advantage, hence, likelihood of being hit by an economic turbulence is much lower than other industries and accordingly, investors will consider investing directly in such industries’ related equities or equity funds or IPOs or even startups, depending as usual on the investor’s risk profile, appetite and expected return.

This will create as well a competition between countries and currently, the United States of America, Russia, China, Germany, France and Switzerland are already in the race, and other countries such as India and Korea will follow.

Financial digital solutions such as Initial Coin Offerings and Security Token Offerings may as well emerge and become of considerable demand especially if these are issued by regulated authorities securing the protection of the investors’ rights. 

All these developments may occur anytime, and they will lead to a change in the concepts of investments and returns, and definitely to a change in the investments’ vehicles and methods, and a change in the investors’ profiles. 

All of these developments and changes will be the result of the Covid-19 effects.

All information and Content of this post are the property of the author. The Content is protected by copyright laws, trademark and design rights. Any unauthorized use of the Content will be considered a violation of the author’s intellectual property rights. Unless otherwise stated in this document, the author’s reserve all tacit and direct rights to patents, trademarks, copyrights or confidential information relating to the Content. Unless otherwise stated in this document, no Content may be copied, distributed, published or used in any way, in whole or in part, without prior written agreement and consent from the author. ?