In today’s Exponential Investor

  • Getting out of Covid-19
  • Going down to the beach… or not
  • Taking off again


Here at Southbank Investment Research, we have no view on the accuracy of the official data which shows that new Covid-19 cases are falling sharply in number in the UK.

Nor, assuming that this is true, do we have a better insight than anyone else as to why it might be so.

Possible reasons include and are not limited to: the “Pingdemic” keeping a lot of people who are infected with Covid-19 at home; the reluctance of some people to be tested for fear of a positive result; and some parts of the UK approaching herd immunity (i.e. the situation where almost everyone has been vaccinated or, from a past infection, has antibodies).

Two big steps towards the post-Covid era

Two reports which hit my desk last week provided some insights into the issues that really matter.

One report is the Economist’s Global Normalcy Index.

Based on research from 50 countries, including the largest in terms of population and economic activity, the Index looks at activity relative to levels that prevailed prior to the emergence of the Covid-19 pandemic across eight areas (retail, time not at home, public transport usage, office usage, road traffic, cinema attendance, flights, and sports attendance).

A reading of 100 would indicate that activity has returned to pre-pandemic levels: currently the global index stands at 69 (NB the results from each country are weighted by population).

The readings are highest for retail (97, presumably in part because of the rise in importance of e-commerce/online shopping) and time not at home (96, which is possibly a reflection of trends in China, India and the United States).

The reading is lowest for flights (34) and sports attendance (19).

The Economist reckons that Hong Kong is the only place in the world where activity exceeds pre-pandemic levels: the index there stands at 101.

Seven countries have Indices that range from 80 to 86: from highest to lowest, they are Romania, Nigeria, New Zealand, Egypt, Pakistan, Mexico and (to my surprise given my experience of empty offices and the under-used Vienna Airport) Austria.

The numbers vary quite markedly for G7 group of major economies whose heads of governments met on 11-13 June at Carbis Bay in Cornwall: United States (78, in 12th place overall); Germany (73/16th); France (73/19th); Italy (69/23rd); Japan (68/27th); Canada (65/ 30th); and the UK (65/31st).

For now, activity is most restricted in Australia (52/44th), Taiwan (50/45th), South Africa (48/46th) and four countries in South East Asia: the lowest ranked country is presently Malaysia, with an index of just 28.

Whatever may be your view of Freedom Day two weeks ago, the UK remains behind the United States, and nearby countries in Europe, in terms of its return to pre-pandemic levels of activity.

And, of course, the return to pre-pandemic levels of activity is just one of the two big steps to a post-Covid era.

The other big step is attainment of herd immunity.

About four months ago, consultancy group McKinsey published a report, “When will the

COVID-19 pandemic end? March 2021 update”, which suggested that herd immunity will be reached over the course of 3Q21 in the United States and the UK and in 4Q21 in the European Union (EU).

McKinsey suggested that, for each country/region, the path to herd immunity will depend on seven factors:

  • Percentage of the population that has already been vaccinated
  • Supplies of vaccine which the country/region has secured
  • Readiness of domestic supply chains to distribute vaccines
  • Willingness of the public to be vaccinated
  • How many people are under 19 years of age (given that “a greater proportion of children makes a transition toward normalcy easier to achieve but herd immunity more difficult”)
  • Prior infection rate (given that higher historical infection rates reduce the number of people who need to be vaccinated)
  • New variants of Covid-19 that are resistant to the existing vaccines.

Obviously, the last of these is a wildcard, which could delay the progress on the road to a post-Covid era for a country, region or even globally.

At this stage it still seems that the United States, the UK and the EU can get to something like herd immunity by the end of 2021.

However, this is unlikely to be the case for much of the rest of the world.

One industry that will not be returning to normal in 2021, or 2022…

On 21 July, the United Nations World Tourism Organisation (UNWTO) published a report on the state of that global industry.

As of May this year, domestic travel was rebounding in a number of countries with large populations (and numerous tourism destinations).

In China and Russia, for instance, domestic air seat capacity had already exceeded pre-pandemic levels.

The UNWTO also highlighted the improvement to domestic travel in the United States.

However, much of the report made for grim reading.

In the first five months of this year, international tourism arrivals were 65% lower than they had been in the corresponding period of 2020 and 85% down relative to January-May 2019.

The UNWTO also conducted a global survey across its UNWTO Panel of Tourism Experts on the impact of Covid-19 on tourism and the expected time of recovery.

A key question was: When do you expect international tourism to return to pre-pandemic 2019 levels in your country?

In Europe, 46% of respondents said that they expect this to happen in 2024 or later.

Another 40% said that they thought that it would happen in 2023; 13%, in 2022.

Only 1% were looking for the recovery to be complete in 2021.

In the Americas and the Asia/Pacific, some 56% of respondents expect that international tourism will reach pre-pandemic levels in 2024 or later.

Even if the pessimists are worrying too much, international tourism will not be returning to pre-pandemic levels of activity anytime soon.

Another industry sector – and one that has passed a cyclical low point in its fortunes

Regardless of how fast it unfolds, the recovery in international tourism should be good news for airlines, the suppliers of planes to the airlines, the makers of the planes and the companies that supply components and engines to those makers of planes.

However, as Sam Volkering – who is well known to readers of Exponential Investor – has been explaining for some months, the recovery is not the only positive change that is taking place in industries that are linked in some way to aviation.

On 3 June this year, Frontier Tech Investor – of which Sam is editor – discussed a company in that publication’s recommended portfolio that had risen in price from 39p to 112p over the preceding eight months.

Since then, the company has given back some of those gains, but is still trading at around the 100p mark.

Out of fairness to Frontier Tech Investor subscribers, I can’t reveal the name of the stock here. 

However, I can say that the company in question is well known, and has developed technology that will enable planes to fly more efficiently and – in terms of carbon dioxide (CO2) emissions – cleanly.

The technology is also potentially linked to sustainable aviation fuel (SAF), another exciting area that Frontier Tech Investor has focused on.

In the meantime, the recovery in the share price suggests that the very worst is over for the various industries that are connected to aviation.   

Until next time,

Andrew Hutchings
Managing Editor, Southbank Investment Research

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