How To Profit From Lingering Opportunities In The Post-Pandemic Recovery

How To Profit From Lingering Opportunities In The Post-Pandemic Recovery
Carl Hazeley

over 2 years ago3 mins

  • While it might seem like the “reopening trade” has already played out, there’s still opportunity to be had.

  • Domestically, things seem back to normal – but international activity is still lagging far behind.

  • You might be able to profit by investing in European companies with large international businesses.

While it might seem like the “reopening trade” has already played out, there’s still opportunity to be had.

Domestically, things seem back to normal – but international activity is still lagging far behind.

You might be able to profit by investing in European companies with large international businesses.

Mentioned in story

Throw a rock, hit a reopening economy: with daily news of economies opening all over, you might think the time to profit from backing beaten-up stocks has been and gone. But fresh analysis from Goldman Sachs suggests there’s still room for certain European shares to benefit. And you know what that means: opportunity. Here’s how to spot the winners.

What’s the analysis?

Last week, activity levels across the European “reopening categories” that Goldman tracked improved to 14% below pre-pandemic from 16% below in the week prior. Diving deeper, domestic European activity levels – that didn’t involve crossing international borders – were actually above pre-pandemic levels for the second week in a row. That’s been driven by strong leisure demand: restaurant booking momentum has continued to improve, hotel revenues are ticking higher, and road traffic has been hitting levels not seen since 2019.

GS reopening scale

What exactly are “reopening categories”?

Reopening categories are sectors and sub-sectors that stand to benefit from economies returning to their pre-pandemic state – like international travel (tracked via flight searches, airport traffic, and hotel occupancy) and domestic travel (transport usage, restaurant bookings, retail sales, ATM transactions).

How’s it all measured?

Goldman created a simple average of all the data it collected, split into domestic – for local data – and international categories. The percentage values represent the change in activity for one week compared to a normal pre-pandemic period. Europe-wide data includes the UK, Germany, France, Spain, and Italy.

Domestic activity returning to pre-pandemic levels is all well and good, but international activity is still significantly lagging. One possible explanation: consumer confidence in traveling abroad is yet to return.

Following largely successful vaccine rollouts across Europe, the proportion of vaccinated people is now expected to drift up slightly – rather than shoot up dramatically. And that probably means we’re simply waiting for people to accept and adjust to the “new normal” before international travel picks back up. For now, at least, that’s taking regular Covid tests and providing proof of vaccination before traveling.

Vaccination rates by region

So what’s the opportunity here?

After a long period of optimism, investors are worrying about the outlook for economic growth: we’ve been contending with fresh coronavirus variants and weaker-than-expected Chinese economic data, after all.

That creates an opportunity. Should worries about virus variants begin to abate, especially in highly-vaccinated countries, there’s potential upside to international reopening activity – and, therefore, to the shares of companies set to benefit.

Broadly, European stocks have performed well this year. But according to Goldman’s strategists, there’s room for them to rally up to 13% further in the next 12 months.

Here’s a way to play this: you could buy into stocks likely to benefit from a full reopening, however gradual it may be. These stocks (dark blue) have lagged the European stock market (light blue) as a whole.

Reopening beneficiaries vs European stocks

To identify the specific stocks you might want to buy, check out Goldman’s handy table. It shows the companies its analysts rate as “buy”, and for which they expect share prices to rise by 10% or more in the next year, and whose businesses are largely international-facing, meaning they should benefit the most from a full pandemic recovery in Europe.

Source: Bloomberg, Goldman Sachs
Source: Bloomberg, Goldman Sachs
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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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