It’s no secret that investment and capital markets are constantly evolving through economic events, cycles, trends and structural changes. But since the pandemic, Australians are flocking to the share market, with a recent Investment Trends report revealing a whopping 435,000 Aussies joined the share market during COVID-19 for the first time.
So why is Australia going through such a major investment renaissance?
Ramping up activity beyond COVID-19
COVID-19 has had a profound impact on investment and financial markets globally. Periods of tumultuous change brought by this pandemic often generate opportunities for astute investors who are able to ‘read the play‘.
A number of factors have contributed to a surge in investment appetite, including low interest rates, volatility in share markets around the world, and the proliferation of easy to use, innovative trading platforms. On top of this, there’s the fear of missing out (FOMO), which is spurring on a wave of fresh investor behaviour.
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Interestingly, investment appetite is rising among the younger generations as the pandemic is forcing them to rethink their long-term wealth strategy. In fact, recent data from Commonwealth Bank’s share trading platform CommSec revealed (83%) of first timers were made up of millennials, Gen Z and Gen X.
Unlocking fresh investment opportunities
Moving into 2022, while COVID-19 is still front of mind for many investors, there are some more interesting and immediate investment implications as a result of the pandemic.
The healthcare industry has been forced to transform rapidly, and health innovation has gone from strength to strength since the pandemic. Similarly, structural changes such as decarbonisation, ageing of the population and technology advancements on the internet and in e-commerce, continue to throw up investment opportunities. This makes healthcare, technology, aged care and the environment as the four major investment opportunities that are currently out in the market, and appetite for investment is hotter than ever.
It’s important to note these sorts of structural changes occur less frequently than ‘cycles’. Cycles are often easier to anticipate. The market is plentiful with examples of discerning investors who have reaped superior investment returns over lengthy periods, by being able to ‘read the cycle’ in various asset classes. Cycles include the housing cycle, the interest rate cycle, the business cycle or the trade cycle.
Organisations such as Ramsay Health Care, Sonic Healthcare and Nanasonics have fared differently under the COVID-19 pandemic, although all are clear beneficiaries from the demographic trend of the ageing population.
Sonic grew its revenue in the 2021 financial year by 28% on the back of 36 million COVID-19 tests, while Ramsay recorded a 28% reduction in EBIT for the September 2021 quarter, as isolation orders cut the demand for elective surgery and non-surgical services. Infection prevention company Nanasonics owns and develops cleaning and sterilisation technologies that are likely to be in demand in a post-COVID environment, especially within the health sector.
Ageing of the population is another trend that can create fresh business opportunities and diminish others. Ramsay Health Care, Sonic Healthcare and Ingenia are beneficiaries of an older population as the demand for health care and retirement living services increase.
AI and the age of super-tech
Technological advancements like artificial intelligence (AI) and digitisation are trends that can significantly enhance business process efficiency and productivity, resulting in higher profit outcomes. Super Retail Group and Telstra are able to hyper-personalise service and product offerings, while automotive parts retailer Bapcor is able to use digital solutions and data analytics to drive efficiencies in procurement and supplier relationships.
The irreversible and growing trend toward e-commerce and online shopping has fuelled the demand for logistics and associated warehousing to service the fulfilment needs of consumers and merchants. Geoff Goodman, the Goodman Group CEO, has stated that his company cannot build logistics and warehousing infrastructure quick enough to meet the demand for its specialist buildings and infrastructure.
WiseTech Global, the owner of an integrated global software platform for international logistics service providers, is experiencing record demand from the Goodman Group’s 18,000 logistics customers.
Structural changes brought about by decarbonisation is a current focal point for clever investors. Boral and BlueScope Steel have each embarked on a decarbonisation strategy built around the recycling of demolition materials and steel. Steel, once produced, exists forever and so is infinitely recyclable.
Western Areas, a nickel-focused base metal explorer, is likely to benefit from the tightening global demand for higher nickel content batteries for the Electrical Vehicle market.
Investment tactics beyond ‘conventional wisdom’
As major events and trends unfold, it’s the reaction from investors that determines the investment outcome. For example, pandemic conditions may require an investor to make an investment decision that is considered contrary to the ‘conventional wisdom’ prevailing at the time.
Experienced investors know ‘following the crowd’ doesn’t always make money. Smart, well-informed investors who understand the concept of ‘risk-adjusted returns‘, consistently achieve superior investment outcomes, compared to the ‘crowd’.
Looking at 2022, the investment horizon has numerous businesses that have earnings and growth outlooks backed by emerging and sustained trends, likely to support earnings and asset growth well into the future. If investors understand these sectors and invest their money wisely, their 2022 could be a bonanza of a year.