Gulf Insider talks to industry leading experts at Swiss Wealth Manager, Julius Baer
The crisis put healthcare at the forefront. How has coronavirus accelerated this trend?
We remain convinced that the coronavirus crisis will only accelerate existing structural trends rather than creating new ones. Let’s take a look at healthcare. The biggest issue is that costs have been rising rapidly for years. Between 1980 and 2019, the share of healthcare costs of global GDP has risen from around 5% to 9%. Put differently, people spend more and more money on healthcare which they cannot spend on other things anymore. However, we believe that thanks to technological progress we are at a point where we can make the system more robust and more efficient while at the same time providing high-quality care.
We believe that due to the extent of this epidemiological out- break, governments and major medical-care stakeholders will be prompted to further reinforce the resilience of their healthcare systems. In fact, the pandemic has demonstrated the willingness of many nations to turn to innovative solutions to alleviate strain on their healthcare systems while ensuring that patients continue to receive quality medical care during the public health emergency. In particular, the implementation of lockdown measures across the world has led to an increase in online medical consultations and adoption of mobile health technologies among authorities, medical professionals, and patients to curb the further spread of the coronavirus.
Global support for the greater use of digital data in healthcare is primarily driven by the younger cohort of medical professionals and consumers, which bodes well for the future resilience of the system. Younger people are also more likely to view the further digitalisation of healthcare as a means to improve patients’ health out-comes and experiences. This development is fostered by favourable political tailwinds, momentous demographic forces, the rise of chronic diseases associated with ageing, the growing financial burden of medical care, as well as shifting preferences for convenience and greater digital uptake led by the next generation of younger professionals.
Will the Corona crisis change the role of governments?
One of the important aspects this pandemic has taught us is that: governance matters, governance that fits the nuances of cultural differences. We have seen that countries with solid governance ratings, from a so-called ESG (Environmental, Social, and Governance) perspective, tended to weather the crisis well. Harsh lockdowns were the consequence of unpreparedness and uncertainty. The crisis also accelerated authoritarian tendencies, and in that sense made the world less democratic. However, the multipolar world is thriving and will remain a source of surprise this decade, not least as China regained economic strength exceptionally fast.
Are we looking at an accelerated revolution in electric cars?
Energy transition as an example of a structural trend that is positively impacted by the crisis, in particular, the shift towards plug-in cars away from combustion engines. Various countries pledged to aim for net-zero greenhouse gas emissions by 2050 or 2060, with China being the most surprising new joiner. The crisis offered an opportunity to tilt policy support towards environmental goals.
The crisis fast-forwarded the shift towards plug-in cars thanks to stimulus measures including dedicated support to cleaner mobility, most notably in Europe and China. Plug-ins now account for more than 20% of new cars in Europe, and 10% in China. The developments so far this year con rm our view that the era of electric mobility is about to take off this decade. In consequence, with mobility representing the lion’s share of oil demand, we also see a peak in global oil demand as very likely around 2030.
What will globalization look like after the coronavirus?
The corona crisis has put the risks of international dependence and the vulnerability of global value chains back into focus. It has highlighted many of the risks of protectionism and supply chain disruptions, as factories had to temporarily shut down, international transports were halted, ports had to close, and some countries ordered to stop all exports of critical supplies such as personal protective equipment, medicines and ventilators. The pandemic has elicited calls for policies to reduce reliance on overseas suppliers and to encourage reshoring of strategic businesses. It adds to existing challenges for global supply chain systems arising from the new industrial revolution, rising populism, and growing economic nationalism in many countries of the world.
Overall, a variety of factors hint towards more reshoring in the future rather than less. However, the corona crisis will likely only provide a limited and temporary boost to reshoring efforts, and they will probably be overshadowed by political and technological impact factors. The growing digitalisation of production should turn out to be the biggest game changer, leading to a reorientation of global production and trade back to developed economies. At the end of the day, what is getting reshored and to what extent will be decided on an individual company level after rigorous cost/benefits analyses.
How will our cities look post crisis?
The corona crisis has temporarily turned our cities into sleeping giants, prompting some to raise the question if our city-centric world has reached a tipping point. Seemingly supportive of this, there are reports of people fleeing from cities. However, taking a closer look, these reports rather refer to a shift from the world’s biggest cities into smaller ones. While some will doubt life in the city because of the current crisis, we do not find any evidence that the density of cities raises the risk of being infected with the coronavirus. This becomes most obvious by looking at the persistently low infection numbers in some of Asia’s megacities. Instead, the past months have shown that the infection risk is first and foremost about our own behaviour.
The crisis will however leave an impact on society. It is very interesting to see how some cities are trying to keep what they established during the crisis; more room for pedestrians and cyclists for ex-ample, and the greater relevance of small-scale neighbourhood societies. Hopefully, these elements will remain as they have the potential to make our cities more liveable. When it comes to the way we work, we reiterate our view that working from home will be more common, but it will not be the new normal. It provides greater flexibility but has the disadvantage that the interaction with our colleagues is suffering. Not to mention the fact that it deprives the day of structure, which is a problem for many.
With that in mind, we expect the world’s cities to bounce back, as they did after every crisis, and remain the growth engines of the global economy.
The sustainable investment wave continued to gain momentum over the course of 2020, as the corona crisis raised awareness of severe market shocks. While the hardship of the crisis itself also brought a temporary demotion of environmental, social and governance (ESG) issues to many stressed companies this year, investor interest nevertheless kept rising, according to the most recent Edelman Trust Barometer. Surveyed institutional investors expect the focus on ESG issues to return with the economic recovery and become a must-have for any successful company’s strategy, even with executive pay becoming linked to responsible conduct demonstrated by strong ESG standards.
Next to growing product opportunities, sustainable equities and their respective benchmark indices continued to outperform. Industries with a link to sustainability like healthcare, education or renewable energy are seen as growth drivers of the future, there-by attracting more and more inflows. Moreover, research has shown that companies with a strong ESG background are more resilient and successful in the long run.
Julius Baer is a leading Swiss wealth management group which focuses on providing personal advice to private clients around the world, powered by high-end services and expertise.