The world has taken a new turn in 2020, and the range of potential outcomes is almost impossible to quantify. We believe we are at the cusp of a new era because of the profound impact of the acceleration of a number of secular structural forces of change, which we call the “six Ds.” The first five of these are: constructive destruction, technological disruption, geopolitical disorder, demographics, and mounting public debt. While these forces have existed for some time, the coronavirus—the sixth D—has forced them into plain sight and may have accelerated some changes and added new ones, deflecting the future economic and market environment to a new trajectory.
Rather than expect the world to revert to the path it was on before the coronavirus, we believe investors should consider the extent to which the pandemic has changed the direction of travel:
- The scale and speed of the economic contraction has created uncertainty about the shape and length of the recovery, as well as potential opportunities;
- Technological disruption has gained momentum, and the ways in which we transport, work, and shop are unlikely to return to the way they were;
- Geopolitical disorder has become a persistent and significant concern for many investors;
- Aging demographics have been moderating economic growth and inflation, while the pandemic may change the health care needs and behaviors of the elderly; and
- Debt levels that were yet to return to normal following the 2008 global financial crisis (GFC) have soared.
While the pandemic is not the sole cause of these secular changes, it is proving to amplify and accelerate their impacts.
Let’s take a closer look at the various changes in turn.