COVID consequences ‘will come home to roost’

By Lachlan Maddock

January 22 2021
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Markets are enjoying an easy ride despite the economic damage wrought by COVID-19, but “there will be a reckoning”.

Munro Partners chief investment officer Nick Griffin named rising inequality as one of the biggest risks for markets and the economy in the medium term, saying that the meteoric rise of some companies would eventually create worse outcomes for the businesses and workers they replace.

“It’s inevitable that Amazon can’t keep making more and more money off small businesses. Domino’s can’t keep destroying every single pizza shop in the marketplace. This dynamic that occurred before COVID is worse after COVID,” Mr Griffin told media, adding that the jobs created as those companies expanded their operations would only temporarily ease the pain.

“You need Amazon right now to be strong, you need these companies to be strong, because they’re going to help you get out of this mess in the same way they helped you get out of the financial crisis. But there will be a reckoning – there has to be. Because you can’t have this level of inequality happening in the world,” said Mr Griffin.

Jun Bei Liu, portfolio manager for the Tribeca Alpha Plus fund, revealed that while she was keeping an eye on China’s rapid economic growth and increasingly belligerent approach to international relations, greater regulatory pressure on global tech giants also loomed as a key headwind for markets.

“We also have increased pressure now on the market power of the tech players. You will see increased scrutiny around the Western World, and even across China, about the market power of those businesses. There will be more regulation across the Western economy for those tech players, and there will be the segregation of the US and China’s tech infrastructure,” Ms Liu said.

“We’ve seen those things playing out for the last several years now, but clearly in the last 12 months we’ve seen more intense pressure across those areas. What does that mean for equity markets? It means risk, it means when we start having these uncertainties markets just aren’t pricing them in. If any of those flare up, we will see equity markets sell off, and investors try to reprice on what it means for their future.”

Ms Liu said that while there was a “small probability” of that coming to pass in the next 12 months, it was something that “you always keep in mind”.

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