Flexible working – and the impact on investment markets

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By Justin Wynne
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Date posted:
29 September 2020, 3:25 PM

For many of us Covid-19 has changed the way we work, shop and entertain.

A significant number have embraced the flexibility of working from home, as evidenced by markedly quieter inner-city shopping centres and increasingly vacant office towers. The impact on landlords is yet to be fully quantified but leads us to ponder what is the ideal level of staffing and how much space does a business need?

The answer to this question will likely identify potential winners and losers, from which investment risks and benefits will undoubtedly arise.

Work location 2.0:

Work location is increasingly likely to be a mix of home and office, with employers and employees looking to extract benefits.

To facilitate this approach employers have embraced at a rapid pace the provision of ‘flex spaces’ combined with software defined networks and cloud solutions to empower their employees.

Conversely there is unsettled debate about the performance and engagement of employees working at distance over an extended period. Acknowledging that the balance between remains unsettled, it’s important to remain open minded in weighing any investment decisions.

Property:

The ‘death’ of physical retail space looks overdone, despite capital raisings and debt issuances being challenged by investor sentiment in the short term.

To that end the contrarian view is to focus on those opportunities that provide growing yields from high end multi-tenant properties. But ask – do these names present generational low buying opportunities or a value trap?

Technology:

Many domestic and global technology stocks are trading on historically elevated valuations despite not recording meaningful profits (e.g. ZOOM) reflecting the tremendous uptake in use in 2020. We are also seeing this in the valuation of online retailers such as Kogan.com (ASX:KGN). But how large are their competitive advantages, indeed do they have true economic moats?

These 2 sectors are at polar ends of the discussion, but what about the stocks that are possible winners in either scenario?

Data centres and Software as a service:

Global demand for data centres and software is growing. Companies are outsourcing to the cloud to save money, enable scalability of their services and enhance the technological capability of employees to work from home.

There are a range of options available to investors ranging from local champions (e.g. NextDC – Morgans Analyst) to global companies (e.g. Google/Amazon). These companies while trading on higher valuations are providing real and likely sustainable growth in a world where nominal GDP growth is low.

These two sectors provide a way to play the changed world whilst managing the risk of work location 2.0. Whilst investors need to carefully consider their portfolios and the valuations of these stocks there are opportunities that should be considered.

Find out more

Justin is a Senior Investment Adviser at Morgans. Justin's passion is facilitating and managing long term wealth creation and preservation with a diversified global approach.

If you would like to discuss your financial investments, please contact Justin on Justin.wynne@morgans.com.au or on 02 8215 5012. Alternatively, you can contact the Morgans Sydney Office on Sydneyoffice@morgans.com.au or via (02) 9043 7900.

General Advice warning: This article is made without consideration of any specific client’s investment objectives, financial situation or needs. It is recommended that any persons who wish to act upon this report consult with their investment adviser before doing so. Morgans does not accept any liability for the results of any actions taken or not taken on the basis of information in this report, or for any negligent misstatements, errors or omissions.

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