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Picking winners amid clash of the superpowers

Ng Qi Siang
Ng Qi Siang5/15/2020 07:00 AM GMT+08  • 4 min read
Picking winners amid clash of the superpowers
“We acknowledge the rising risk but believe it is not currently enough to derail China’s outperformance versus the broader emerging markets.” - Morgan Stanley
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SINGAPORE (May 15): The dynamics of globalisation were already changing before Covid-19. That shift has been accelerated by the Covid-19 shock testing supply chains in healthcare and pharmaceuticals, food supply chains and technology infrastructure, prompting governments to increasingly treat these sectors in the same category as national security. Rather than sourcing from competitive suppliers, countries will aim to be more self-reliant. “They will also be subjected to increased regulation and oversight, giving them characteristics closer to the utility or defence industries,” says Fidelity International.

“While more regulation could lead to lower profits over time, it is also likely to create more stable earnings and cash flows, potentially benefiting valuations. These sectors should prove to be winners, but due to less physical travel between and within countries, travel and leisure, lodging, transport and cross-border education could be impaired,” the asset manager adds.

Broadly, technology and innovation will be relative winners in the long term. Online banking, e-commerce, streaming, and online gaming and gambling companies will all see growing adoption. “While there will be some reversal to bricks and mortar after the lockdown, we are seeing a clear acceleration in online adoption and believe such shifts will be permanent,” says Nicholas Grace, equity portfolio manager at Capital Group, without naming specific stocks.

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