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28 Jul 2020

The More Things Change...

The COVID-19 pandemic has dramatically and swiftly changed our living routines and operating habits. Future gazers have opined on how much of our daily lives will change permanently. But Foord Singapore analyst JC XUE explains what won’t change and why human nature is the perennial constant.

COVID-19 lockdowns and social distancing measures have adapted us to working from home, meeting via video chat and embracing online shopping. A lot more will change and some of our habits will evolve — how much will be tied to the containment of the pandemic and timing of vaccine development.

But we should never forget that humans are social animals. We go to the office and to school for collaboration and socialisation. We need to be around people instead of staying on a perpetual social island called home.

We are also dreamers. We dream of owning a Ferrari and travelling the world. We cannot wait to board a plane to fly to our next holiday destination. We grow bored. We will always need new entertainment, be it video games, television shows or social media. We want to look good, we want convenience and we want the products that add value to our lives.

The things we want enrich the monotony of our work-sleep-work regimes. They are the constants that won’t change. Much has been made about the investment winners from the post-COVID new-normal.

But in my view, companies that are focused on the constants will also thrive.

Foord Global Equity Fund investee Tencent has focused on keeping consumers from boredom. It invests in an ecosystem of entertainment products from video games to music and streaming video content. It fostered social connection across its gaming ecosystem by encouraging friends to play together through sharing via WeChat and its other social media applications. These created a positive reinforcement cycle. Another investee, JD.com, is the second largest e-commerce platform in China. It has focused on consumers’ constant need for authentic products, at the best price, delivered fastest. Both companies have performed superbly during the crisis.

The pandemic has undeniably affected the fortunes of companies focused on servicing our dreams. Lockdowns and stay-at-home orders have hit the travel and luxury goods industries hard. But I believe that we will continue to dream and that long-term demand for these products will endure. Airbus will still develop increasingly efficient planes to sustain our dreams to travel the world. And Moncler will capitalise on its 65-year heritage to expand its luxury, down-jacket brand to more aspirational consumers.

Uncertainty breeds opportunity. To focus on what is constant rather than on what is changing is to focus on things that are more knowable. This reduces the risk of investment loss. Patient investors could use this strategy during the crisis to buy great businesses at attractive valuations such as we have done at the margin with Airbus and Moncler.

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