- Impact investors with money in sectors such as biotech, health and communications technology may see pandemic-fueled growth.
- Forecasting models from a leading climate change stress-analysis firm suggest that share prices may be down as much as 38% this year from the end of 2019.
- While COVID-19’s long-term economic impact is uncertain, early scenario analysis suggests significant losses across the board.
Despite the current bloodbath in global markets, some sectors that draw impact investments may get a lift from the COVID-19 crisis, according to at least one forecast.
Biotech, healthcare and information and communications technology solutions, such as videoconferencing, stand to benefit from the global reaction to the virus, according to Jakob Thomä, managing director and co-founder of 2° Investing Initiative.
The global think tank uses stress tests and scenario analysis to predict climate change outcomes. Now, it’s applying those models to determine the extent of the economic damage the global pandemic may cause. Depending on how long the crisis goes on and how widely it spreads, as well as how governments and businesses respond, the firm anticipates global stock markets to be down 23 to 38% in December from a year prior. Its models anticipate losses to maintain through 2022.
The Dow Jones Industrial Average dropped 23% this year through yesterday, the worst first quarter since 1987, according to MarketWatch.
Impact investors are likely to see a similar shock to their portfolios, aside from those with money in sectors that are seeing growing demand amid the crisis. Tech communications platforms such as Zoom and Facebook-owned WhatsApp have seen massive growth in demand as many people work from home and rely on digital platforms for social connection. At the same time, biotech companies are racing to find an effective treatment for COVID-19, and investors are speculating that health stocks are a good investment.
Yet few investors were prepared to mitigate the portfolio losses incurred by the crisis, and impact investors are no exception, Thomä said.
“The big problem is that impact investing, like ESG, doesn’t seem to have prepared for this,” he told Karma. “While they might ‘outperform the downturn,’ they still are riding the roller coaster down in most cases.”
The firm predicts that fossil fuels and distribution, tourism and leisure, and automotive and parts may see the greatest declines in share price. Food and drug retailers, personal goods, and medicine and biotech research stocks are expected to see the greatest gains.
Real estate in particular may weather the crisis better than other sectors, according to the model. That’s because historically the real estate sector has not been that sensitive to health pandemics, Thomä explained.
“There’s quite a lot of literature showing that in typical economic downturns, real estate prices remain quite resilient if there isn’t a specific shock to real estate markets,” Thomä said.
He emphasized the need to revisit the firm’s COVID-19 stress-test scenario analysis and its underlying assumptions as the situation evolves. Many factors about the current situation are uncertain, given its unprecedented nature.
“We have no role model for economic lockdowns,” he noted.
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