Terry Tang, Investment Advisor
June 30, 2020In 2020, the world is in a mess. COVID-19, U.S. presidential election, economic war between the two largest economies the world, the list goes on. No doubt this is a very challenging year for investing. But challenges bring volatilities, and volatilities bring opportunities. There are certainly great opportunities out there if you look close enough.
I have talked about the future of fintech on many occasions and how it will transform the business landscape in the next decade. The COVID-19 has surely accelerated the shift. Many businesses are pushing for cashless transactions, driven by the fear of transmitting COVID-19 and refrain from handling bills and coins. Customers are never more ready than before, shifting to debit or credit cards. According to Interac, a record 61.3 million e-transfers took place in April, up 62 per cent year over year, and first-time users increased by 43 per cent since mid-March.1 Financial companies with fintech capabilities such as Visa (V:NYSE) and Mastercard (MA:NYSE), and fintech companies such as PayPal (PYPL:NASDAQ) and Square (SQ:NYSE) are obvious benefactors of the trend.
Big-Pharma are racing to develop vaccines to fight COVID-19 and experts are saying they could be ready in months. The COVID-19 has affected more than 10 million people and caused the death of over 500,00 people worldwide.2 According to Johnson & Johnson, the company is set to start it’s first human trial in July, and plan to manufacture over 1 billion doses of potential preventive vaccine by the end of 2021. Top pharmaceutical firms such as Pfizer (PFE:NYSE), AstraZeneca (AZN:NYSE), and Johnson & Johnson (JNJ:NYSE) are some of the key competitors of the vaccine race.
"many businesses are pushing for cashless transactions, driven by the fear of transmitting covid-19 and refrain from handling bills and coins."
According to 2PM, a subscription-based media and growth consultancy company, COVID-19 has forced e-commerce penetration in the U.S. to jump from 16% to 29% in just eight weeks. Comparatively, the same amount of growth was achieved over a period of 10 years prior to that.
Source: 2PM, Inc.
How that number will change after retail stores reopen remains to be seen, but COVID-19 has certainly accelerated the shift from brick-and-mortar to online shopping. Just recently, Walmart and Shopify have teamed up to expand its third-party marketplace site and take advantage of a surge in online shopping. Stocks to watch: Amazon (AMZN:NASDAQ), Shopify (SHOP:TSE), Walmart (WAL:NYSE).
Bank stocks such as JPMorgan Chase (JPM:NYSE), Bank of America (BAC:NYSE), and Citigroup (C:NYSE) have been beaten down since the start of the pandemic over massive loan losses amid closures and shutdowns. The question is whether banks are resilient enough to absorb these losses, continue to support the economy, and still financially sound to pay out dividends to investors.
U.S. banking regulators are about to relax the Volker rules, which were created after the financial crisis with the objective to prevent banks from investing in risky assets. The move will allow the banking industry to free up billions, and potentially help small businesses that are being affected by the crisis.
We cannot talk about banks without the Fed’s stress test. The stress test, also known as Dodd-Frank Act stress testing (DFAST) is a forward-looking exercise that assesses the impact on capital levels that would result from immediate financial shocks and nine quarters of adverse economic conditions.
To assess the impact on COVID-19, the Fed analyzed how the banks would perform in a V-shape, U-shape, and W-shape recovery. The results revealed most banks are healthy enough to weather the storm, while other banks may be forced to cut dividends if COVID-19 persists. The Fed is also freezing stocks buybacks and capping dividends at its current level.3
1 Interac Corp., May 22, 2020,, Newswire.ca, <https://www.newswire.ca/news-releases/covid-19-accelerating-the-move-to-digital-payments-across-canada-810549777.html>
2 COVID-19 stats, Google.com, June 30, 2020
3 Hugh Son, June 25, 2020, Fed Puts Restrictions On Bank Dividends After Test Finds Some Banks Could Be Stressed In Pandemic, CNBC, <https://www.cnbc.com/2020/06/25/fed-puts-restrictions-on-bank-dividends-after-test-finds-some-banks-could-be-stressed-in-pandemic.html>
The views and opinions expressed are those of the author and may not necessarily be those of Aligned Capital Partners Inc. The content is for informational purposes only and not meant to be personalized investment advice.
Disclaimer: Information contained in this publication has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made by Terry Tang, ACPI or any other person as to its accuracy, completeness or correctness. All opinions expressed in this communication are as of the date of this publication, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this publication constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Products or services referenced may not be suitable for you and it is recommended that you consult your financial advisor if you are in doubt about the suitability of such investments or services. This is not an offer to sell or a solicitation of an offer to buy any securities. Investment products are provided through ACPI and include, but are not limited to, mutual funds, stocks, and bonds. All non-securities related business conducted by Terry Tang is not in his capacity as an agent of ACPI. Non-securities related business includes, without limitation, fee-based financial planning services; estate and tax planning; tax return preparation services; advising in or selling any type of insurance product; any type of mortgage service. Accordingly, ACPI is not providing and does not supervise any of the above noted activities and you should not rely on ACPI for any review of any non-securities services provided by Terry Tang. Past performance is not indicative of future performance, future returns are not guaranteed, and a loss of original capital may occur. Every province in Canada has their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, any securities discussed in this report may not be eligible for sale in some jurisdiction. No matter contained in this document may be reproduced or copied by any means without the prior consent of the author or ACPI.