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From a sharing to a no-sharing economy?

Asia Analytica
Asia Analytica • 7 min read
From a sharing to a no-sharing economy?
The viral outbreak has instilled a fear in us — more so in some than others — the fear of friends and associates and especially of strangers.
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(June 5): The short answer is, no, it will not happen. The secular change to the sharing economy, with its benefits to costs and convenience, will return.

Not so long ago, the shift from ownership of resources to a sharing economy appeared inexorable — enabled by the ubiquity of smartphones, high-speed internet connections and community-based online and mobile platforms that seamlessly match buyers with sellers (providers of goods and services).

The sharing economy was widely embraced by consumers around the world, driven by the unprecedented convenience and choice, at competitive prices on the back of greater resource utilisation efficiencies.

These platforms also created new job opportunities and flexibility for workers to earn extra income, giving rise to what we call the gig economy.

Start-ups such as Uber, Airbnb and WeWork were globally recognised names, the disruptors and, seemingly, the future of the sharing economy, often commanding valuations that far exceeded the biggest incumbent players in the transportation, hospitality and real estate businesses.

Until the Covid-19 pandemic.

The viral outbreak has instilled a fear in us — more so in some than others — the fear of friends and associates and especially of strangers.

This fear has abruptly reversed our previous willingness to share space — be it in a car, a restaurant, a shopping mall, an airplane, a living space, an office and so on — and basically anything tangible.

Is this the new norm? Will social distancing push the world into another shift, this time from a burgeoning sharing economy back to a no-sharing economy?

Without a doubt, the impact of Covid-19 on the sharing economy is severe in the short term. And companies are hunkering down for the challenges ahead. For instance, Uber announced layoffs for thousands of employees — about a quarter of its total workforce — and folded offices around the world.

Airbnb had initially planned for an IPO — slated to be one of the largest this year — a possibility that is now far less certain. Instead, the home sharing platform raised US$2 billion, or $2.8 billion (a combination of debt and equity) from investors in April, at a high cost of reportedly between 9% and 11.5%.

A work-from-home (WFH) secular trend would surely have material implications on demand for co-working spaces as well as the value of commercial and residential real estate in cities and suburbs. Less commuting will translate to lower demand for public transportation and ride sharing. There will also be a spillover impact on foot traffic within commercial districts that will affect bricks and mortar businesses such as food and beverage outlets.

Facebook CEO Mark Zuckerberg predicted that half of the company’s employees could be working remotely within the next five to 10 years. Aside from prevailing pandemic fears, there are some real advantages to the WFH trend. For starters, Facebook will have a larger pool of potential employees to choose from, talent from all over the country — indeed, possibly all over the world — if its search is not confined to the cities where its offices are located.

That said, WFH might turn out to be more of a fad for the majority of businesses. The fact is, there is significant value in face-to-face interaction and interpersonal relationships, between colleagues, with suppliers and customers.

In short, we do not think the pandemic will permanently damage the sharing economy or reverse this budding secular trend.

How many of us swore to never take another plane ride in the immediate aftermath of 9/11, after watching the planes crash into the Twin Towers of the World Trade Center? Or travel for holidays after seeing the horrific terrorist attacks in Bali, Barcelona, London, Brussels, Berlin, Paris, New York and other places?

Yes, travel and tourism dived in the immediate aftermath of each event. But they have invariably recovered. Some resulting behavioural changes are permanent — we are much more vigilant and aware of our surroundings. For example, we will report on unattended baggage and suspicious persons. Security measures were tightened, for instance, airport control and things that can be brought onto a plane. All these remain in place today.

The same will happen in the post-pandemic world, now that we are all too aware of how destructive an outbreak can be and the very real risk of the next, as yet unknown, contagion in the foreseeable future.

There would be changes to some existing business models as companies adapt to the evolving environment. New safety (healthand hygiene) measures will be implemented to rebuild the trust in the community.

For example, we would likely see redesigning within enclosed as well as outdoor spaces. There is talk of reversing the airflow in planes, from downwards currently to upwards. A shopping mall in Thailand replaced buttons in its lifts with foot pedals, to promote zero contact.

We expect accelerated and widespread adoption of touchless technology, such as the use of biometrics and smartphones for check-in, security and boarding at airports, digital menus (using QR scans) in restaurants and digital payments.

It may take a bit of time but make no mistake, we will step back into a shopping mall, dine in a restaurant and have a drink with friends in a bar. We will travel in a car, plane or cruise ship with strangers. And we will start sharing again. Because humans are social animals — prolonged isolation is bad for our sanity — and memories are short. But most critically, we must never let fear dictate how we live our lives.

The Global Portfolio gained 3.8% for the week ended June 4. Total portfolio returns were lifted to 15.2% since inception. By comparison, the benchmark MSCI World Net Return Index was up by 10.8% over the same period.

The Boeing Co was the top gainer, surging 15.8% last week. The company has resumed production of its beleaguered 737 Max planes, which was halted in January as inventories piled up. The plane remains grounded worldwide and new planes cannot be delivered to customers pending recertification. The decision to restart production could portend Federal Aviation Administration certification in the near future.

Boeing plans to cut about 16,000 jobs — about 10% of its global headcount — as part of its measures to reduce costs, which also include production process changes to account for lower production rates. Both Boeing and Airbus have seen order cancellations and delivery delays as demand for air travel collapsed.

Other notable gainers for the week included Alibaba Group Holding and Qualcomm while Lennar, BMC Stock Holdings and Builders FirstSource were the three losers. US stocks remain resilient, maybe even eyebrow-raisingly so, holding on to most of the gains from the recent rally. The Standard & Poor’s 500 has risen 39.6% from the bottom on March 23 and is now only 8.4% from its all-time high.

Optimism over the reopening of the economy, boosted by cheap money, continues to outweigh dismal economic statistics, which many view as lagging indicators. With interest rates expected to be lower for longer, yield-hungry investors are chasing up asset prices — and in the process, taking on more risks.

Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/ sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.

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