Key insights
- Bank stocks provide an example of what can happen to the most despised segment of global markets through a crisis. On the back of Fed and capital support, bank stocks returned over 200% about one year from their GFC low.
- We believe that the best capitalized and best competitively positioned travel companies have significant upside.
- Waiting for the pandemic to end is not, in our view, a strategy if investors want to capture the full recovery potential of the hardest hit stocks.
The travel and leisure industry is having its worst year on record. It's as though the Global Financial Crisis ("GFC") of 2008-2009 has returned, with airlines, hotels, travel-related software, theme parks and other travel segments experiencing the most acute pain. But a recovery in travel-related stocks may be in sight.
The GFC sent shockwaves through the global capital markets and dragged the global economy into severe recession. Recognizing the potential for an even worse economic shock, during Covid-19, national governments and central banks have intervened with trillions of dollars of fiscal support, securities purchases, and lower interest rates—all to soften the economic blow from the pandemic. Many listed travel and hospitality companies have raised debt or equity to alleviate liquidity problems.
Even as they raise plentiful financing, formerly outstanding business franchises in these Covid-19-afflicted industries have become the investment pariahs of 2020. Despite their likely recovery and rock bottom valuations, travel-related stocks have struggled to attract investors. The global travel industry likely will not return to 2019 levels of revenues until late 2023 or 2024. Yet we are observing drastic cost cutting in travel-related companies, not to mention the reduction in travel & leisure capacity—both voluntarily and from the collapse of smaller players. As a result of this restructuring, the return to profitability of the higher-quality, best-managed travel franchises may be surprisingly rapid. In 2021, we currently expect more than one FDA-approved, widely available Covid-19 vaccine, as well as treatments to mitigate symptoms.
Key insights
- Bank stocks provide an example of what can happen to the most despised segment of global markets through a crisis. On the back of Fed and capital support, bank stocks returned over 200% about one year from their GFC low.
- We believe that the best capitalized and best competitively positioned travel companies have significant upside.
- Waiting for the pandemic to end is not, in our view, a strategy if investors want to capture the full recovery potential of the hardest hit stocks.
See more Region / Sector Specific insights
Bank stocks provide an example of what can happen to the most despised segment of global markets through a crisis. During the GFC, bank stocks collapsed. The KBW Bank Index, which represents US exchange-listed stocks of national money center banks and leading regional institutions, reached its GFC low on March 6, 2009, the same day that the US jobless rate registered 8.1% (the rate peaked at 10% in November 2009, not to be surpassed again until the Covid-19-induced economic collapse in early 2020). Back then, U.S. Federal Reserve ("Fed") Chair Ben Bernanke proclaimed the world was suffering from the worst financial crisis since the 1930s. The Fed announced in mid-March 2009 that it would buy $1.2 trillion of debt to boost lending and promote economic recovery and would purchase toxic assets to repair bank balance sheets. Major central banks spent the early part of 2009 cutting interest rates and expanding the money supply. Nearly all Group of Twenty or "G20" countries enacted fiscal stimulus plans to support economic activity. Several large banks raised equity to meet regulatory capital requirements. Governmental support and banks' own capital raisings generally added to investor confidence and fueled the demand for cyclical stocks, especially bank stocks. From that March 2009 low, the KBW Bank Index rebounded 211% by April 23, 2010, just over a year later.
Continue reading here.
