Private equity firm Blackstone says investors should look for stocks with upside from eased restrictions
Link copied to
Steve Schwarzman, the boss of heavyweight private equity investment firm Blackstone Group, believes the recovery from COVID-19 will be gradual but V-shaped.
A so-called “V-shaped” recovery assumes a gradual recovery without any setbacks whatsoever.
In an interview during the Bloomberg Invest Global virtual event the Blackstone chief said the economy would bounce back.
However, he thinks it will be a while before it reaches 2019 levels.
“You’ll see a big V in terms of the economy going up for the next few months because it’s been closed,” Schwarzman said overnight.
“As people are allowed to go back, the economy will really respond a lot.
“But there’s only so much the economy, that’s highly complex, can respond. Just because not all things go up equally and it will take quite a while before we sync up and get back to 2019 levels.”
While the economy is now in a recession, Schwarzman said the economic fallout would be worse without government stimulus.
In fact, it has led to markets bouncing up as if nothing had happened.
“We haven’t had a depression, the reason for that is we’ve learnt from the past and you’ve had massive government intervention, a massive transfer of trillions of dollars of money to people who need it to in effect to replace the lost revenue from shutting down our economies,” he said.
Schwarzman said investors needed to look at businesses that faced the most upside from the easing of COVID-19 restrictions.
“It’s about figuring out which of the underlying businesses is going to return to health,” he explained.
“We’re taking a basic view that it is not particularly interesting to buy securities in what are really challenged business models.
“Those things trade at very deep discounts and if those companies make it that’s a good thing. But the chance that some of these will recover as nicely as you want is perhaps compromised in this cycle because of the impact of technology and changed behaviour of people.”
Schwarzman said the pandemic had accelerated trends that might’ve taken five years and made it happen in three months.
“So we’re mindful of these types of changes and are investing around those changes,” he explained.
While he did not delve into specific industries, some industries that have witnessed rapid acceleration include telehealth services and edtech. Both of these are expected to continue growing even as a return to pre-COVID life becomes possible.
Global cases of COVID-19 are still on the rise, hitting 9 million overnight. But Schwarzman says the disease won’t strangle the economy forever.
“I don’t find that [rising cases] surprising. People have been locked up in their homes for two to three months and if you let them out there’ll be socialisation and people won’t understand truly that this can get them sick,” he said.
“I completely expected this to happen, the markets did as well and that will be put under better control because there’s no option.
“No one wants to get sick so you’ll have change in behaviour as the number of cases goes up and eventually that’ll be beaten down.”
While he thinks a COVID-19 vaccine will emerge, he says investors are over-optimistic about the development time frame.