20.3.2020 Pasi Havia

Security from the “Stay-at-home” Economy during the Corona Panic

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Stock markets have met a shock. This time the hit came from outside of the economic realm in the shape of the coronavirus. The world economy has suddenly stopped with countries closing their borders and people quarantining in their homes. The beginning of the year’s returns have melted off in markets at a pace not seen since the financial crisis.

The sudden braking in markets has to be understood, as the world economy has been on artificial life support through various massive stimulus measures. When the world economy suddenly stops, all ingredients for a deep dive are there. Several countries’ economies will fall into a recession, and the probability of a depression is high. The longer the situation lasts, the more lasting will be the damage done to the economy.

Central banks across the world have been supporting slowing world economies with ever increasing stimulus. In the United States, the Federal Reserve reduced rates to zero and presented a 700-billion dollar stimulus package. The European Central Bank in turn will begin emergency funding to the tune of 750 billion euros. At the same time, Lagarde moved the Eurozone from “whatever it takes” rhetoric to “there are no limits.” Too bad that none of these measures will cure the coronavirus pandemic but only moderate its side effects in the economy.

In a severe bear market, all stocks are sold off. Only a little bit later, when there has been time to analyze the situation better, is the wheat separated from the chaff. The coronavirus affects companies in different ways. Airline companies and other companies related to tourism and transportation have naturally been the objects of panic selling.

The corona epidemic does not seem to be a short-term problem, but according to the latest information the situation will last for months. In the worst scenario, if the virus mutates, it will keep spreading across the globe for years. With people’s mobility being restricted and with them spending time at home in increasing amounts, the types of services people use will change.

In my opinion Jim Cramer came up with a good term for this kind of economy by calling it the “stay-at-home” economy. Cramer brought up 20 companies in Mad Money, which are good picks in such a situation. In a “stay-at-home” economy people avoid contact with other people and use products that can be accessed directly from home. In a “stay-at-home” economy, people use more time on social media than usually, using different entertainment services, and favor ordering products online rather than visiting brick-and-mortar stores.

Out of Cramer’s picks, five companies can be found in the HCP Focus fund’s portfolio: Facebook, Amazon, Shopify, Nvidia, and Etsy. They constitute almost half of the entire fund. In addition to these, Focus has other companies whose services the “stay-at-home” economy could generate demand for. Grubhub delivers restaurants food directly to the consumer’s door, and Baidu will serve as China’s search engine as previously. Therefore a major share of HCP Focus’s investments can be considered “stay-at-home” companies. Despite share prices falling majorly, HCP Focus has not come down as much as the benchmark index or the market globally, even though the fund is extremely concentrated. Companies benefiting from the “stay-at-home” economy have given the fund security during the worst corona panic.

The coronavirus will pass with time, and humanity will survive this as well. Consumers who have been happy with at-home services will likely continue using them. As a result of these, HCP Focus too could emerge stronger than before from the coronavirus pit.

Let’s wash our hands and take care of each other!

Pasi Havia
HCP Focus portfolio manager

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(This text is a translation of an original Finnish-language text by Pasi Havia.)

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