The long-term impact of the pandemic on the economy, financial markets and society is difficult to assess. We ask some questions and try to answer them to the best of our knowledge. Along the way, you will learn what the abbreviations SRSSI mean.


Question 1: Will the virus remain a constant companion of mankind?

The more decentralized, the more heterogeneous and the more often information is stored, the more likely it is that it will survive the centuries.

COVID-19 is information. Millions of people on all continents are information carriers, so the above condition is fulfilled. Humanity has not yet succeeded in eradicating the bubonic plague. Probably mankind will have to learn to live with COVID-19 permanently. This could mean that many of the current short-term emergency measures will be the rule in the future.


Question 2: How does the virus evolve?

Since the virus mutates rapidly, but evolution takes place in fast motion, 2 scenarios are conceivable:

1. Mutations that benefit the virus:

Because of its many carriers, the virus has millions of chances to mutate for its own benefit. Similar to the fact that there is no generally valid flu protection, but only protective vaccinations without 100% protection against flu viruses of this season, in this region of the world, there is the danger that future vaccinations will only provide incomplete, temporarily valid protection against the variants currently rampant in this region. Therefore, at the beginning of the outbreak, the WHO was concerned that the virus would become endemic in population-rich countries with poor health systems. Unfortunately, these fears eventually became reality.

2. Mutations to the disadvantage of the virus:

The virus has no DNA; it has no copy protection. Therefore the copies of the virus are so different and why it mutates so quickly. Occasionally, virus copies are so bad that virus outbreaks simply “die”. While this chance exists, and was particularly high at the beginning of the epidemic, the chances have fallen sharply with decentralized storage in millions of people in all countries, because the probability that at least some of the mutations will not occur to the detriment of the virus is very high. For the epidemic to kill itself, all mutations would have to be to the detriment of the virus. This seems rather unlikely.


Question 3: Was COVID-19 good for the stock markets?

The pandemic was and is clearly a disaster for the economy. Many companies, countries and civil societies will emerge from this crisis severely weakened. The economic slump will be the biggest since the Great Depression of the 1920s.

Normally, catastrophic economic news is also bad news for the stock markets. As a rule, a slump in the real economy, a severe recession, leads to a sharp drop in profits and a crash.

At the beginning of the pandemic, the financial markets followed exactly the standard pattern. For example, the S&P500 fell from 3373 on February 20, 2020 to 2237 on March 23, 2020, a 34% drop in just one month and one of the fastest and most severe crashes ever.

In response to this crash and the looming economic crisis, central banks opened their money-locks and began to buy up financial assets on an unprecedented scale and at an unprecedented speed. Within days, the balance sheet expansion of the FED and other central banks exceeded the total balance sheet expansion during the global financial crisis of 2007.

Chart 1 shows the “explosion” of the FED balance sheet.

Chart 1: Development of the FED balance sheet (in USD billions), since 2008

Development of the FED balance sheet (in USD billions), since 2008

With these buy-up programs, the FED managed to turn bad news from the real economy into good news for the stock markets. More about this “twisted world” and what this has to do with art can be found here. What the whole thing has to do with a classic behavioral experiment, for which the Nobel Prize was awarded in 1904, can be found here.

Due to the enormously aggressive reaction of the central banks, the prices of various indices, e.g. the NASDAQ Composite or the NASDAQ 100 rose to all-time highs despite the economic crisis. The SMI also regained its former strength and almost survived the slump.

What’s next for the stock markets?

For shares to remain at current levels or continue to rise, the central banks’ balance sheet expansion must be maintained, and market manipulation must therefore be implemented even more aggressively. The true extent of the real economic crisis is probably underestimated by many market participants. The economy could still be facing the worst. Once again, a deterioration in the real economy could trigger even more aggressive market manipulation by the central banks if it is not stopped somehow.

Therefore, only combined intervention and equity forecasts can be made at present: If the central banks buy up assets even more aggressively, if the FED cuts interest rates even further into negative territory and extends its official buy-up programs to include the purchase of equity ETFs and equities, equities will continue to rise.


Question 4: Who are the winners of the COVID-19 pandemic?

In principle, countries, sectors, companies and individuals with high (low) digital literacy are likely to be among the winners (losers).

Example 1: Home office solution providers

“Teleworking” – the home office – has often proved its worth during curfews. Many managers are now likely to be more open to homework and ask themselves the questions: “What if a second wave comes? What if there is a sequence of curfews?”. Wherever possible, many companies will set up their work infrastructure so that people can work from anywhere with a reliable Internet connection. Swiss companies could also benefit. For example, Logitech was able to sell around 60 times more videoconferencing equipment during the quarantine period.

Example 2: Factory automation in the manufacturing industry through robotic solutions

Factory workers could not work from home during the lockdown, unlike office workers. According to estimates, in Switzerland alone, more than half a million people were forced to work short time from the end of March onwards, and the manufacturing industry came to a standstill. As a result, efforts to be able to produce locally without human labour when needed have increased sharply. As a result, orders for robots have tended to rise despite the economic crisis. Among others, Kuka (Germany), Fanuc, Yaskawa (both Japan), but also the Swiss ABB were able to benefit.

Example 3: Virtual leisure activities

During the lockdown, many did not want to celebrate their birthday alone. Why not have an online birthday drink via Zoom, Skype or Instagram? Why not visit museums or take dance classes online, for example?

Example 4: Medical robotics and telemedicine

In China many hospitals have been equipped with robots. These can only be infected by virtual viruses and, for example, automatically carry out disinfections. Endangered human nursing staff will be replaced by robots in the future.

Remote treatment without having to visit a practice with a high risk of infection led to a boom in telemedicine providers and online pharmacies.

Example 5: “George Orwell profiteers”

Dealing with pandemics is one of the few examples where a totalitarian surveillance state – a planned economy – can be superior to a bourgeois liberal state – a market economy.

Through geolocalization of smartphone users, facial recognition software, compulsory tests and automatic temperature measurement, China has succeeded faster than the USA in filtering out and isolating infected persons and tracing infection chains. The advantages of totalitarian surveillance methods in the fight against a pandemic are obvious. South Korea and Singapore also successfully used similar methods.

The author is convinced that in the long run most states will learn many false lessons from the COVID-19 crisis, will thus “overlearn” and therefore further reduce civil liberties, liberalism and the market economy. With the COVID-19 pandemic, the limit of what is acceptable has also shifted massively in the West towards the restriction of civil liberties that would have been unthinkable before the pandemic. The justification for maintaining or expanding “surveillance” is very simple: “We have to do this to prevent a second wave. You must choose between privacy or life and health! That’s why we also need the 5G network and a pandemic ministry with a huge budget and a lot of staff…”.

Many countries use automatic “curfew control robots” to monitor the quarantine measures. Even electronic dogs are already in use.

If you are going to be monitored and restricted more in the future, why not benefit financially at least or at least partially against the surveillance state by investing in companies that offer the surveillance state technology? The author is curious to know which exclusion criteria and which exclusion philosophy the providers of “Social Responsible Indices” will choose…

COVID-19 has even produced new indices

The pandemic has even led to the creation of new stock indices.

The American investment company MKM, for example, developed a “Stay at Home Index”, which includes around 30 companies that have benefited from the initial restrictions and should continue to do so. More information about this index can be found here.  Perhaps there will even be a “Socially Responsible Surveillance State Index” (SRSSI) soon? What do you think?

Finally, two company figures to illustrate the impact of COVID-19

Unique Airport recorded a decline in passenger numbers of almost 99% in April 2020 compared to the previous year. Instead of the 1.9 million passengers in 2019, only 21000 flew. Many retailers in the airport building are “completely free of turnover”.

Reinsurers are suffering from the pandemic loss payments. The postponement of the Olympic Games alone could cost Swiss Re a quarter of a billion US dollars. The claims for damages could add up to three quarters of a billion US dollars. On the other hand, it is currently difficult to take out insurance against COVID-19. Premiums have risen sharply.

Due to the sharp falls in the share prices of Unique Airport, Swiss Re and other “pandemic losers”, it is conceivable that COVID-19 losses have already been more than adequately priced in. Thus, a scenario in which a “pandemic loser index” will perform better than the market in the medium term has a high probability of realization.



This post was automatically translated

Thomas Härter
Chief Investment Officer Aquila