It made an interesting reading of the recent analysis in Financial Times of the aggregated $3 trillion increase in market cap of 100 companies across the globe. Amazon, Microsoft and Apple contributed $1 trillion as obvious gainers, but importantly, the balance is also quite widespread across 97 companies across sectors. We are making a summary of some interesting insights behind these companies, but before that, a little background for the uninitiated.
A common hearsay at this point, the scenario prevailing across the globe right now on growth/jobs and demand is dismal but the stock markets across the globe are depicting a completely different situation. A lot has been attributed to deluge of liquidity across the globe, but a closer look at top 100 gainers confirms that there is fundamental shift and a select few have been able to capture it nicely. Working from home and e-commerce surge has made the entire ecosystem going and it seems to have set the winners for the next decade. We have broken down the list into various sectors and summarised the shift.
Corporates have been shifting to automated work practices and cloud-based systems to support work from home. Also, there have been heightened demand for employee collaboration & performance management tools. With such demands, the gainers have been companies providing cloud servers, cloud computing services, automation software, communication tools and performance management apps. Companies making smart chips for AI, ML and IoT integration have also gained abnormal business traction. Follow on gainers have been Data centre providers (enabler for cloud data disruption) and Cybersecurity service providers (enabler in securing online data). Companies include Microsoft, Amazon, Alphabet, Facebook, Zoom, Nvidia, Okta, Sea Group, Prosus, ServiceNow, Salesforce, DataDog, AMD, Equinix, DocuSign and Keyence
People have been advised to stay at home and practice social distancing measures. With this thought, it is pretty obvious that ecommerce sales will increase disproportionately. Also, bigger gainers are those companies who have their own built up platform, saving on the hefty commissions charged by marketplace providers. Companies have also hiring services to set up online shops adding to their external platform-based online sales. Follow on gainers have been the ones providing logistic & warehouse service providers, payment gateways, food delivery companies and ones supporting the ecommerce online infrastructure. Hence, the top 100 companies includes include Amazon, Reliance, Facebook, Pinduoduo, Meituan Dienping, Shopify, Alibaba, SF Holding, Just Eat Takeaway, L’Oreal, Prologis, Mercardo Libre, Paypal, Adyen and Chewy
OTT and Gaming
Entertainment has moved to home like staple food, interesting trend is that eating out (restaurants) was probably more an entertainment and not hunger salvation. Suddenly, the entire wallet /time share of eating out and entertainment has found solace in OTT, Music Streaming and Gaming. Follow on gainers have been individual content creators and betting companies. Hence companies like Netflix, Amazon, Spotify, Activision Blizzard, NetEase and Flutter make it to top 100 list.
The engagement levels on social media apps have been sky-high during this lockdown. While social media companies have faced reduced advertising revenues however companies with deep pockets have continued to be the beneficiary of the higher engagements and the richer & deeper user behaviour data. Companies like Alphabet, Facebook and Snap continue to consolidate.
Gold and Mining
Gold price is at seven year highs, clearly suggesting world has lost confidence in any other saving tool or financial market and hence gold mining companies have made a comeback. Quoting Barrick Gold’s CEO, Mark Bristow, “When you buy physical gold you don’t get a yield, but if you buy a well-run sustainably run gold mining company you should get a yield”. Companies include Luxshare Precision, Barrick Gold and Newmont
This sector has always been high on equity charts globally because of high entry barriers to business, ability to price goods, generate hefty free cash flows and most relevant business on a global scale. The pandemic effect will probably separate the men from boys in this sector, some of them will take disproportionate lead. Ancillary and direct beneficiaries of pandemic are companies in testing business and medical devices (like Ventilators). People have also become serious regarding their physical & mental health and hence, the other set of beneficiaries are ones selling physical fitness necessities and providing mental health podcasts. Hence top 100 list includes gainers like Abbvie, Chugai Pharmaceutical, Roche, Regeneron Pharma, Novo Nordisk, Mindray and Lululemon.
Irrespective of pandemic, investors have kept their faith on Electric vehicles and autonomous vehicles. Follow on gainers are ones operating in this ecosystem, like providing auto components. Top gainers list includes Tesla, CATL and LG Chem.
In China, major luxury and liquor companies have become optimistic about recovery as the initial response and sales figure have been encouraging. Globally, work from home meant people spending greater time at home, leading to increased consumption of snacks and packaged food items. Hence select gainers list includes Kweichow Moutai, Nestle, The Home Depot, Hermes, Lowe’s, L’Oreal and China Tourism Group Duty Free
This sector may have its homecoming moment, lost its shine over past 10 years and delegated to just being utility product – the backbone has found traction and a reason to earn reasonable returns to otherwise an highly capital intensive business. Also, while rest of real estate linked businesses nearly in dump, mobile towers and data centres find capital chasing them to support the exponential growth expected in next decade. Hence, a surprise set of companies T-Mobile, AT&T, American Towers, Reliance and Crown Castle make this cut of 100 top gainers.
Clearly, unleveraged businesses in overall umbrella of financials have gained, S&P Global as a Credit Rating agency receives income from rating credit instruments and US has witnessed record debt issuances this year already. Non-critical medical treatments have been postponed leading to less insurance claims paid while Premiums have remained constant, benefits Centene. Prosus has gained because of its profitable investments in the sectors that turned out right
It was probably going to happen someday, the pandemic lockout has fast forwarded clearly the role of Edtech into our lives by at least 10 years. Its still the first wave of pandemic and if a second wave leads to another 3 to 6 months of lockdown in some format, our brick & mortar learning infrastructure may just be a thing of past. Every possible learning till for age 3 to 50 has found an online solution and learners seem to be gaining comfort with it every passing day. Follow on gainers have been companies providing the necessary infra to record lectures, take online tests and to conduct live lectures. Hence rightful gainers in top 100 list includes TAL Education Group, Offcn Education Technology and GSX Techedu.
Just a step behind Edtech, Healthtech finds itself in situation where consumer (both patient and doctors) prefers and is willing to pay for online consultations. Also, hospitals need more automation to support the increased workload while maintaining the other necessary activities and research. Gainers list therefore includes Alibaba Health Information, Veeva and Teladoc Health.
Pandemic has resulted in long lasting change in consumer behaviour. This has resulted in tailwinds for many companies, either their offers were well suited for the situation, or they were opportunistic, or were able to pivot themselves rapidly well to the changing demand. However one thing we can conclude is that there is new order in stock markets / corporate world and market leaders would emerge.
Disclaimer: The intent of article is to provide educational information only and does not constitute specific financial, trading or investment advice.