COVID-19’s Long-Term Impact – Closing Remarks by GIC GCIO Jeffrey Jaensubhakij at GIC Insights LIVE 2020

The COVID-19 pandemic has been a uniquely challenging time for the global economy, markets, households, companies, countries and policymakers, as we have had to navigate the deepest recession since the 1930s. We are only partly through it. Yet, we can already see that important changes are happening in the societies and economies that we live in. These changes will have a deep impact for years to come.

Will we look back in a few years time and see the COVID period as a pivot point, a catalyst for deep structural changes in how we work, live and invest?

There are three facets to how this period could be catalysing structural change.

FIRST, THE ACCELERATION OF EXISTING TRENDS

The most obvious of these trends is the use of technology in how we work, play and consume. For example, e-commerce was already a rising trend, but with the pandemic severely limiting physical shopping, households have been forced to buy all manner of goods online, and to access services digitally. Once the convenience of this has been proven, there may be no going back. Markets have certainly recognised this acceleration. Technology stocks have been on a tear, be it e-commerce, software-as-a-service, social media or gaming stocks.

One area where technology acceleration is still nascent is in healthcare. Our panel on The Future of Tech-enabled Healthcare spoke about how technology has made remote monitoring of trial patients convenient and cost-effective. The pandemic has necessitated virtual consultations, and telemedicine could be a trend that expands the capacity of our healthcare systems, whether in the US, China, or elsewhere. Technology is also enabling a move from pay-per-service to outcome-based payments, which could dramatically improve the efficacy of healthcare systems. In addition, increased R&D investments in COVID vaccines and treatments could result in a burst of scientific discoveries and commercial opportunities. These are early trends, and still offer much opportunity for investors.

However, the pandemic has also accelerated some less positive trends, such as the increasing rivalry and friction between the US and China. Blame is being placed for the spread of the virus, and there is mutual determination not to be reliant on each other for important medical and technology supplies. These tensions further the trend towards deglobalisation that had already started before this year.

Our panel on The Future of Biopharma Supply Chains noted how the pandemic has shown the need to diversify supply chains for important medical products. This change, however, will not come easily. The current supply chain is so cost-efficient that it will need government subsidies or directives to change it. Optimised cost and scarce talent also make it unlikely for supply chains to move rapidly. There will be important investment opportunities. One example is for medical contract manufacturers to become second sources for supplies.

SECOND, THE REVERSAL OF UNSUSTAINABLE TRENDS

In addition to accelerating existing trends, the pandemic may also catalyse a decisive change in the direction of unsustainable trends. One such trend is rising inequality. The COVID-19 crisis has been the most challenging for lower-income segments, particularly those who depend on daily or weekly wages. The economic difficulty brought on by the pandemic has added fuel to the fire, driving the protests we have seen in the US and elsewhere. Will we see political change, that puts in place policies to try to reverse some of the inequality? Will we see higher and more progressive personal and corporate income taxes? Will we see greater fiscal spending to directly support the poor? If enacted, these will have a great impact on investments.

Another significant trend is climate change. Two of our sessions at GIC Insights LIVE focused on whether we may be seeing a shift towards poorer sustainability outcomes. At the opening keynote on The Future of Sustainability, former US Vice President Al Gore compared the COVID crisis to the climate crisis. Both crises have revealed the dangers of not listening to scientific evidence, and have an unequal impact on the rich and the poor. But we may be at a point where a directional change could happen for the climate. Technology has made renewable energy more cost-effective, with energy-efficient solutions to transport and building materials now within grasp. This shift could also be a big source of jobs, just at the time when the COVID crisis has created the need for new jobs.

The panel on The Future of Sustainability – In Practice then focused on how investors are putting sustainability into practice in their investment work. If governments and societies are about to pivot towards seriously tackling sustainability, then carbon pricing could be around the corner. Investors need to be prepared. The panel spoke about ways investment firms can use better data to address sustainability, and how to manage change effectively within their firms, addressing both their teams and their boards. Sustainability will be an important focus area for investors for years to come.

A final unsustainable trend that COVID may be changing is the downward movement in interest rates and inflation that the world has enjoyed for 40 years. Interest rates have been brought down to zero. Negative rates have already been tried, and found to be damaging to the banking system as well as the financing that the economy needs. Instead, governments have chosen to expand fiscally. Central banks have performed quantitative easing to buy government debt and keep interest rates low. Central banks are also now promising to keep interest rates low until inflation averages above the target level for a period of time to make up for past shortfalls. Will this eventually put in place inflationary forces that will reverse the falling interest rate trend of the last 40 years? The consequences for investors and our portfolios could not be greater.

THIRD, THE EMERGENCE OF NEW TRENDS

A clear new trend that has emerged from COVID-19 is that of working from home, which has been made possible with the help of technology. In the closing session on The Future of Communications, Eric Yuan, Founder and CEO of Zoom, shared that the platform has seen a rapid expansion of use cases as consumers and enterprises seek to stay connected during COVID-19. Even as the pandemic eases, demand for videoconferencing is likely to endure. A hybrid work model, where employees structure their time split between working from home and working from the office, could be the most sustainable model in the new normal.

CONCLUSION

These structural changes offer challenges to our existing portfolios, but also present opportunities to invest in companies that are emerging to take advantage of new trends and shifts.

We hope that the discussions at GIC Insights LIVE will pave the way for greater exchanges and collaborations with our partners, as we explore ways to navigate the future, post-COVID.