While markets globally slumped on news of a seemingly more virulent South African strain of Covid-19, there were glimmers of light among stocks which were previous lockdown winners.
As we flagged in the latest edition of Shares, investors in the US have for several weeks been buying stocks that benefited from more people at home (the lockdown winners, such as video conferencing providers) and selling stocks that were a play on economic recovery (the reopening trade, such as airlines).
Yet in the UK and Europe the focus has been on stocks linked to the recovery from the virus, with former lockdown beneficiaries completely neglected.
Whether US investors were generally feeling more risk-averse given the level of markets, or they were more finely attuned to the news flow, is hard to say, but they tend to lead where others follow and in this case their instincts were spot on.
FORGOTTEN HEROES
As we highlighted in this week’s digital magazine, previous lockdown winners such as fantasy games seller Games Workshop (GAW) and financial trading platform Plus 500 (PLUS) were trading down over 10% on the year after a sharp sell-off in the past month.
Unsurprisingly, both stocks are among the handful of winners today as the rest of the market plunges on widespread and largely indiscriminate selling.
Also among the winners today are online grocery delivery firm Ocado (OCDO) and online electricals retailer AO. World (AO.), although each stock tells a very different story.
Looking across Europe, healthcare stocks are in the vanguard with Italian diagnostics firm DiaSorin and French biotech Sartorius Stedim up 7% apiece.
Other winners include French testing group Eurofins, Swiss online medicine delivery company Zur Rose and German technology firm Teamviewer.
RETAILERS HOPEFUL
Amid all the excitement it is also Black Friday, the day when historically US retailers went from making losses to making a profit but which in recent years has been seen as marking the start of the Christmas shopping season.
However, this year more and more consumers began buying in October as supply shortages hit the national news. The biggest factor of the current campaign will be product availability.
Shoppers don’t want to order something only to find out it won’t be available in time so they are much less likely to be brand-loyal this year, even if it means paying more.
According to JP Morgan Asset Management, US consumers have over $2 trillion of excess savings which is equivalent to 11% of GDP thanks to the high level of government support during the pandemic.
The situation is similar in the UK, with excess savings estimated at close to 9% of GDP, while in Europe the level is closer to 6% of GDP.
This is just as well as generally speaking discounts are few fewer and far smaller than in previous years due to low inventories and higher manufacturing costs.
Indeed, the CBI (Confederation of British Industry) has warned shoppers they face the biggest price rises in 30 years after fears of widespread shortages brought forward spending.
According to CBI economist Ben Jones, ‘Christmas seems to have come early for retailers, with clothing and department stores in particular seeing a big upward swing in sales volumes in November.’
Despite shoppers starting earlier than normal, Black Friday is still expected to net the UK retail industry nearly £9 billion or 15% more than last year and significantly higher than 2019, driven by online spending.
