Which lockdown habits could last a lifetime?
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Prediction is very difficult, especially about the future.

Niels Bohr
This cautionary quip, attributed to Nobel Prize winning quantum physicist Niels Bohr, is applicable to anyone making forecasts, and particularly investors at this point in time.

Stock markets will continue to be buffeted by daily news flow around the pandemic. Successful investing in consumer stocks over the next couple of years, however, will depend on developing a vision of post-pandemic consumption patterns with the help of a clear framework.

Where lifestyle changes are permanent, extrapolating the trends of the past 18 months could well be fruitful. On the flipside, riding a “reversion to the mean” might be the right investment approach for those businesses poised to rebound, once restrictions are eased and where old behaviours could return.

And, of course, avoiding those stocks where the market is wrongly assuming that lockdown dynamics extend long into the future will be crucial. Here are some observations to help navigate the likely dramatic swings in the public health outlook, and within the stock market, that we may experience over the next few months.
There may be no clean breaks from the pandemic
Markets embraced the Pfizer/BioNTech vaccine efficacy announcement on 9 November 2020, with sectors and companies that had suffered most from lockdowns performing particularly well. Oil surged 8.5% and concert promoters rose as much as 24% on the day. Airlines globally embarked on a two-day rally of 15%.

The Pfizer/BioNTech news, combined with subsequent announcements from other vaccine developers, marked a massive breakthrough for the public health outlook. However, it has subsequently become clear that there will be no clean break from the pandemic, no single moment when we declare victory and return to the old normal.

New variants that reduce vaccine effectiveness are the clearest obstacle to such a scenario, but there are also issues of vaccine rollout logistics and the duration of immune response (still unknown, for obvious reasons).

It is also difficult to imagine a rapid reintegration of travel between those countries where Covid-19 has been heavily suppressed and those that are on a path to herd immunity.

Hence the scenario we have to imagine is of a gradual relaxation of restrictions, with occasional setbacks and significant variation between countries.
Short-term share price movements may be misleading
Consumer spending patterns may be quite erratic in response to the evolving environment. In particular there is likely to be significant pent-up demand for all types of experiences when restrictions are eased.

A surge in travel seems highly probable in countries where vaccine rollouts have reduced the public health risk. This surge in demand will meet reduced capacity and could drive significant price increases for flights and hotel rooms.

Likewise, if people are allowed to socialise more freely then the hospitality trade and all that goes with it (ride sharing, alcoholic beverages etc.) will likely prosper.

A leg-up in spending on experiences could crowd out spending in other areas, and therefore may give a false impression of eventual consumption patterns post-pandemic. High savings rates in countries like the US suggest more money to go round overall but there may still be some misleading short-term movements.

The market is likely to react to these moves positively and negatively. As a result, it is important for investors to have a clear vision of the long-term direction of spending patterns in order to navigate the months ahead.
Understand the factors that drive habit formation
The academic literature suggests it can take up to 254 days to form a habit (How are habits formed: Modelling habit formation in the real world. European Journal of Social Psychology. October 2010). Since most consumers have now been dealing with pandemic-related restrictions for at least that long, one might jump to the conclusion then that our new routines are here to stay.
However, there is more to habit than purely repetition over an extended period of time. Psychologists and behavioural experts also talk about a “habit loop”, which has three components:
The contextual cue
The behaviour
The reward
As the public health situation normalises, key parts of the habit loop will be broken: some of the contextual cues forced by the pandemic (home schooling etc.) will be absent. And, importantly for us, the reward may be more easily achieved via pre-pandemic behaviours.

Much has been written about how the pandemic has accelerated pre-existing trends – particularly digitisation trends like e-commerce, video conferencing, and connected gaming. Other notable changes include increased interest in health and wellbeing, scratch cooking, and investment in people’s homes.

Using the habit framework outlined above, the changes that are most likely to be “sticky” are the ones that bring a reward that can’t easily be replicated once restrictions are eased. The table below outlines our views on what this means for some of the major trends.

If investors can correctly anticipate what happens to post-pandemic behaviour, it will allow them to build “positive growth gaps” in their forecasts for companies benefiting from these trends. Equally, they’ll be able to avoid ones where the market is wrongly extrapolating ephemeral changes.

It is positive growth gaps which drive share price outperformance. If a company achieves results that are superior to those expected by consensus and those priced in by the market, then that company’s share price is likely to outperform.
Disclaimer
This article has been prepared by Affin Hwang Asset Management Berhad (hereinafter referred to as “Affin Hwang AM”) specific for its use, a specific target audience, and for discussion purposes only. All information contained within this presentation belongs to Affin Hwang AM and may not be copied, distributed or otherwise disseminated in whole or in part without written consent of Affin Hwang AM. The information contained in this presentation may include, but is not limited to opinions, analysis, forecasts, projections and expectations (collectively referred to as “Opinions”). Such information has been obtained from various sources including those in the public domain, are merely expressions of belief. Although this presentation has been prepared on the basis of information and/or Opinions that are believed to be correct at the time the presentation was prepared, Affin Hwang AM makes no expressed or implied warranty as to the accuracy and completeness of any such information and/or Opinions. As with any forms of financial products, the financial product mentioned herein (if any) carries with it various risks. Although attempts have been made to disclose all possible risks involved, the financial product may still be subject to inherent risk that may arise beyond our reasonable contemplation. The financial product may be wholly unsuited for you, if you are adverse to the risk arising out of and/or in connection with the financial product. Affin Hwang AM is not acting as an advisor or agent to any person to whom this presentation is directed. Such persons must make their own independent assessments of the contents of this presentation, should not treat such content as advice relating to legal, accounting, taxation or investment matters and should consult their own advisers. Affin Hwang AM and its affiliates may act as a principal and agent in any transaction contemplated by this presentation, or any other transaction connected with any such transaction, and may as a result earn brokerage, commission or other income. Nothing in this presentation is intended to be, or should be construed as an offer to buy or sell, or invitation to subscribe for, any securities. Neither Affin Hwang AM nor any of its directors, employees or representatives are to have any liability (including liability to any person by reason of negligence or negligent misstatement) from any statement, opinion, information or matter (expressed or implied) arising out of, contained in or derived from or any omission from this presentation, except liability under statute that cannot be excluded.

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TENG CHEE WAI

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Teng Chee Wai is the founder of Affin Hwang Asset Management Berhad (Affin Hwang AM). Over the past decade, he has built the Company to be the fastest growing and only independent investment management house in Malaysia’s top three, with an excess of RM47 billion in assets under management as at 31 December 2018.​

​In his capacity as Managing Director / Executive Director, Teng manages the overall business and strategic direction as well as the management of the investment team. His hands-on approach sees him actively involved in investments, product development and marketing. Teng’s critical leadership and regular participation in reviewing and assessing strategies and performance has been pivotal in allowing the Company to successfully navigate the economically turbulent decade.

Teng’s investment management experience spans more than 20 years, and his key area of expertise is in managing absolute return mandates for insurance assets and investment-linked funds in both Singapore and Malaysia. Prior to his current appointments, he was the Assistant General Manager (Investment) of Overseas Assurance Corporation (OAC) and was responsible for the investment function of the Group Overseas Assurance Corporation Ltd.​

​Teng began his career in the financial industry as an Investment Manager with NTUC Income, Singapore. He is a Bachelor of Science graduate from the National University of Singapore and has a Post-Graduate Diploma in Actuarial Studies from City University in London.
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