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Geopolitics

Winners And Losers In The Coronavirus Economic Crisis

The pandemic will stress existing trends toward digitalization and wealth concentration — others will pay the price.

An Amazon Fulfillment Center in Kenosha, Wisconsin, days after over 30 employees tested positive for coronavirus.
An Amazon Fulfillment Center in Kenosha, Wisconsin, days after over 30 employees tested positive for coronavirus.
Carlos Quezada

-Analysis-

SANTIAGO — Given the turmoil in world markets, uncertainty over when the pandemic will end and questions about the measures governments are taking to manage to the situation, it's worth looking back at some previous, epidemic-borne crises that affected countries or groups of countries.

The most costly, in economic terms, came with the 2009 swine flu ($59 billion), the 1957 Asian flu ($32 billion) and 2005 bird flu ($10 billion).

Even more so than those past crises, the deadly COVID-19 pandemic has caused significant paralysis to the world economy, with certain industries particularly hard hit. And yet, in the midst of the mayhem there are also a few bright spots: companies and sectors that are not only weathering the storm, but also making gains.

Moving forward, the two sectors with most potential for growth will be health care and technology, which together constitute 60% of our investment portfolios. In this pandemic, the U.S. tech sector (Nasdaq) lost up to 24% of its value in March. Since then, however, it has not only recovered those losses but has even added value.

In health care, several drug firms are working on a vaccine or remedies for COVID-19. The most important include Moderna, a U.S. biotech firm that rose 37% in value in one month, and Tilray, which has risen 27%. Another firm that sharply appreciated in May (83%) was Aurora Cannabis, a Canadian firm that recently bought the U.S. firm Reliva.

Moving forward, the two sectors with most potential for growth will be health care and technology.

Tech has greatly benefited from the coronavirus, with an exponential rise in e-trading and confinement measures that have acted as the sector's biggest ever boost. Firms with the most promising stock are Facebook, which has announced a new purchasing system for its different platforms and taken its trading prices to new peaks, and Amazon. Netflix is worth 30% more this year, as is Spotify.

The worst-off sectors, on the other hand, are industry, aeronautics, luxury goods and sports. In Chile, we have seen LATAM Airlines stock plummet 75% this year. There have also been considerable layoffs and the possibility of defaulting on loans and debt papers. Abroad, Boeing has lost 62% of its value though unlike Latam, recouped 6% of its losses in May.

ZUMA_inside_winner_losers_economy_AE

The logo of Moderna, Inc, a clinical stage biotechnology company. —Photo: Andre M. Chang

With sports and luxury, uncertain times cut demand for their products, which are likely to recover, nevertheless, once the economy resumes. Fashion brand Michael Kors lost 60% of its stock value this year though it regained 15% this month, thanks to the renewed economic activity seen in recent months. Certainly, we would not see an immediate recovery in sports as in spite of the fact that gatherings will be permitted, mass attendance for stadium events seems unlikely for now. To illustrate, Juventus stocks have depreciated 40%.

After a recovery that may take years, the world will be ready for a new growth cycle. The coronavirus crisis, then inflation, will pave the way for the future of the world economy, though one must remember that COVID-19 is but a catalyst in this process. It will not create new ideas nor destroy infrastructures or material values. In other words, the "old" economy will remain intact.

Robotization and productivity growth will likely further widen the gap between the rich and poor, and robots will prove more effective workers than people. In the new paradigm, profitable countries will be those able to invest most capital in their economies, which evidently will be the wealthier ones. Thus, in the new cycle, expect developed countries to enjoy higher growth rates than developing countries.

*Quezada is a senior analyst with Libertex, an investment firm in Chile.

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Economy

Lex Tusk? How Poland’s Controversial "Russian Influence" Law Will Subvert Democracy

The new “lex Tusk” includes language about companies and their management. But is this likely to be a fair investigation into breaking sanctions on Russia, or a political witch-hunt in the business sphere?

Photo of President of the Republic of Poland Andrzej Duda

Polish President Andrzej Duda

Piotr Miaczynski, Leszek Kostrzewski

-Analysis-

WARSAW — Poland’s new Commission for investigating Russian influence, which President Andrzej Duda signed into law on Monday, will be able to summon representatives of any company for inquiry. It has sparked a major controversy in Polish politics, as political opponents of the government warn that the Commission has been given near absolute power to investigate and punish any citizen, business or organization.

And opposition politicians are expected to be high on the list of would-be suspects, starting with Donald Tusk, who is challenging the ruling PiS government to return to the presidency next fall. For that reason, it has been sardonically dubbed: Lex Tusk.

University of Warsaw law professor Michal Romanowski notes that the interests of any firm can be considered favorable to Russia. “These are instruments which the likes of Putin and Orban would not be ashamed of," Romanowski said.

The law on the Commission for examining Russian influences has "atomic" prerogatives sewn into it. Nine members of the Commission with the rank of secretary of state will be able to summon virtually anyone, with the powers of severe punishment.

Under the new law, these Commissioners will become arbiters of nearly absolute power, and will be able to use the resources of nearly any organ of the state, including the secret services, in order to demand access to every available document. They will be able to prosecute people for acts which were not prohibited at the time they were committed.

Their prerogatives are broader than that of the President or the Prime Minister, wider than those of any court. And there is virtually no oversight over their actions.

Nobody can feel safe. This includes companies, their management, lawyers, journalists, and trade unionists.

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