COVID-19 Roadmap: Mapping the recovery
About the author:
- Author name:
- By Andrew Tang
- Job title:
- Analyst - Equity Strategy
- Date posted:
- 26 May 2020, 3:48 PM
- Sectors Covered:
- Equity Strategy and Quant
The extremely low rate of new COVID-19 cases in Australia suggests that the restrictions imposed to stem the outbreak could be eased earlier than the July 1 goal as outlined by the Prime Minister just three weeks ago.
While the crisis is far from over, a hazy path out of economic hibernation should be a welcome sign for all. The focus now turns to the shape of the recovery and how quickly economic growth can return.
Since the start of the pandemic, Google and Apple have made available real-time mobility data to track foot traffic. The data shows whether people are returning to work, doing more shopping/leisure activities, or staying at home. The set of indicators provide a current snapshot of the shape of the recovery and consumer behaviour.
The dataset highlights the percent change in visits to places like grocery stores and parks within a geographic area. The report use aggregated, anonymised data to chart movement trends over time across different high-level categories of places such as retail and recreation, groceries and pharmacies, parks, transit stations, workplaces, and residential.
- Working from home appears to be the new normal. Despite the easing of restrictions in recent weeks, there has been very little change to employees work-from-home behaviour. A positive for the stay-at-home economy (cloud, home improvement, online retail, telecommunications, staples)
- Retail and Leisure activities improving but remain 27% below the January/February baseline. The improving trend is expected to continue in the near-term as restrictions ease. However, questions remain as to the durability of the rebound.
- Despite bouncing of the bottom public transport continues to be avoided with a 41% decline in passenger activity.
- Demand for staples (Grocery and Pharmacy) appears to be rising again. This could suggest the March pull-forward of demand has cleared, and spending behaviour is normalising.
Australia mobility changes (percentage change relative to baseline*)
Sources: Google Community Mobility Dataset, Morgans
* The baseline is the median value, for the corresponding day of the week, during the 5-week period Jan 3–Feb 6, 2020.
As we highlighted in our note last week Past the worst, but recovery to be uneven, the experience out of China suggests that consumer demand is likely to pick-up in the short-term however it will remain fragile. After the initial rebound people tended to steer clear of shopping centres, restaurants and public transport. What may initially look like a V-shaped recovery seems set to lose steam, leaving activity below its pre-virus path for the next 2-3 years.
Refer to our strategy bulletin published Monday 11 May “A return to normality by July” where we highlight the few companies poised to perform as domestic restrictions are eased these include (Transurban, REA Group, Aventus, Invocare, Cleanaway, Flight Centre, Bapcor and Sydney Airport)
The potential storyline for the months ahead
With the ASX 200 rallying around 26% from the 23 March low and normalised P/E valuations (FY22 Market PE 15.6x) above the pre-covid levels, we think equity markets are likely to be volatile in the months ahead. Some of the volatility-inducing catalysts include the potential for a second wave of COVID-19 outbreaks, a failed therapeutic or vaccine, rising corporate defaults, and growing tensions between the US and China.
In fact, a temporary pull-back of ~5% at some point during the next three to four months is consistent with the average drawdown we have seen over the last ten years.
However, if this downside pressure were to occur, we would tend to use it as a buying opportunity as the long-term prospects of the equity market remain reasonable assuming the economy starts to rebound by the end of the year and there are further medical enhancements to combat the COVID-19 virus.
More COVID-19 insights
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