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Investment letters

ROAD TO RECOVERY STILL PAVED WITH A “K”

15-Mar-2022

Zak Smerczak

Analyst / Portfolio Manager

Makoto Egami

Analyst / Portfolio Manager

Denis Callioni

Analyst / Portfolio Manager

Justin Streeter

Analyst / Portfolio Manager

Baijing Yu

Analyst / Portfolio Manager

  • K-shaped recovery continues into 2022
  • Three emerging challenges relating to environmental, supply chain and inflationary pressures
  • Companies trending on the upward slope of the “K” riding beneficial tailwinds that boost growth

Last March we wrote about how the post-2020 “K-shaped recovery” was playing out across the globe1 and stated that despite short-term challenges, our belief was that there would be a longer-term shift in the pattern of economic growth since the Covid pandemic had dramatically accelerated the rise of the digital economy.

This means any broad-based, cyclical recovery that we have witnessed is unlikely to sustainably last indefinitely, giving way to the continued “K-Shaped” recovery in which companies on the upward leg of the “K” continue to pull ahead, while structurally challenged companies fall further and further behind. Those that Comgest have identified as trending up include hyperscalers in the cloud, content streamers and electronic payment companies, while fossil fuels, traditional banking and brick-and-mortar retailers are drifting downwards.

Over the past year, however, three challenges have emerged which could change the shape of the “K” at a macro level. First and foremost, there has been a much greater focus on the environmental impact of companies and their carbon footprint, particularly after United Nation’s COP262 climate change conference. Secondly, in 2021 some sectors have witnessed huge supply chain issues which have created a number of headwinds for companies. The third is the impact of inflation and what this means for valuations.

Comgest’s Global Equity and regional portfolio management teams explored the types of companies across regions and sectors that are experiencing headwinds or beneficial tailwinds in this shifting environment.

Read more

1 "Investing in the K-shaped recovery: strong growth or structurally challenged companies?”, Comgest, 2021. (https://bit.ly/3v8NiFe)
2 UN Climate Change Conference in Glasgow (COP26), 2021. (https://bit.ly/353Z8pw)

Comgest

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