Vaccine in sight: Corona losers on the stock markets catch up
Encouraging news regarding Covid-19 vaccines has recently led to a rotation in stock markets: Into industrial stocks, out of tech stocks. Why both sectors have good prospects in the long run.
Cyclical stocks, for example from the industrial sector, have recently been in greater demand on the stock market again. However, high-growth technology shares, which were among the big winners in the Covid-19 crisis for months, have suffered losses. Is the prospect of a vaccine and a possible end to the Covid-19 crisis turning the tide on the stock market? "There are good reasons to believe that structurally healthy companies that suffered from the consequences of the pandemic could recover in the coming months and outperform many of the previous winners of the crisis," says DWS portfolio manager Marcus Poppe. Overall, the valuation differences between crisis winners and losers should narrow with the positive outlook for vaccines.
Structural and cyclical growth
Poppe manages the DWS Smart Industrial Technologies fund. The fund invests in classic industrial stocks, but also in stocks from the technology sector. "We have recently focused on digital business models and supplier companies from the semiconductor industry. This has had a positive effect. However, the fund manager is also well positioned with regard to a comeback of the cyclical companies – for the so-called cyclical turnaround: "Our focus is on companies with intact business models that can achieve both structural and cyclical growth". Over the summer Poppe has already focused more on cyclical companies, becoming more involved in the aviation sector and in some cases adding industrial companies. "This decision has paid off in the wake of the positive news of possible vaccines." Even though further fluctuations cannot be ruled out in the near future, Poppe still expects upside potential for cyclical companies over a 12-month horizon.
Low interest rates support
Despite the recent price setbacks, the portfolio manager still believes the technology sector is promising – especially in the long run. "Growth rates in this sector are expected to remain high, provided the global regulatory environment does not fundamentally change. Valuations of the technology sector are relatively high in the historical context, explains Poppe, but low interest rates should support this valuation. However, he makes one restriction: "If interest rates rise faster than we currently forecast in case of a stronger economic recovery, this sector is vulnerable to corrections. Industrial companies as well as technology companies should benefit from digitalization and therefore also have good growth prospects. "Unlike in the technology sector, I currently see less of a risk of stronger regulation," says Poppe. However, a possible restraining effect could be a slower economic recovery than currently expected.
Sabina Diaz Duque
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