3 Sectors That Could Witness a Strong Recovery

2021-03-13     thesmartinvestor
3 Sectors That Could Witness a Strong Recovery

2021 is billed as the year of recovery. And there is good news on that front.

Pfizer (NYSE: PFE), one of the pioneers in engineering a working vaccine for the disease, recently confirmed that its vaccine is 94 per cent effective in preventing infections, using real-world data obtained from Israel.

Meanwhile, the European Union approved Johnson and Johnson’s (NYSE: JNJ) single-shot COVID-19 vaccine, the fourth vaccine to receive approval.

This move increases the number of vaccine options and raises the chance that most of the vulnerable in Europe can be vaccinated quickly.

And China has devised an international vaccine health certificate that it hopes will be recognised internationally, leading to borders reopening sooner than expected.

With the world working in tandem to beat the pandemic, investors can look forward to a nascent global recovery.

Sectors that were badly hit by the onset of the crisis should also see some respite later this year.

Here are three sectors that could enjoy a strong recovery, along with companies within that will benefit.

Aviation

There’s been a ton of good news on the aviation front.

The director of the International Air Transport Association, or IATA, recently said in an interview that personal and leisure travel should resume in the second half of 2021.

Recall that back in July last year, IATA had projected that passenger traffic for airlines will not return to pre-pandemic levels until at least 2024.

He did caution, however, that the actual travel volume will remain low by historical standards by end-2021.

IATA is already working with multiple countries to design and plan protocols to ensure the safe reopening of borders.

This news must come as a breath of fresh air to the beleaguered aviation industry.

Blue-chip companies Singapore Airlines Limited (SGX: C6L) and SATS Ltd (SGX: S58) saw business volumes drop off a cliff when lockdowns began last March.

With the potential reopening of borders, these companies should see a strong rebound in passenger numbers.

Hawaiian Airlines (NASDAQ: HA) CEO Peter Ingram was recently quoted as saying that there was a lot of “pent-up demand” for travel, attesting to the widespread belief that people are getting very weary of being cooped up at home.

Business travel, however, will return more slowly as companies continue to tweak their travel policies in light of new tools being used for videoconferencing and remote communications.

United Airlines CEO Scott Kirby believes that international business travel should eventually return, though at a slower rate than leisure travel.

The future of the aviation industry may also mean the use of more sustainable fuels in the drive to cut emission to zero by 2050.

Tourism

Tourism is closely linked with air travel and the closure of borders has hit the industry hard.

The Singapore government was quick to recognise this and assisted the sector through the issuance of SingapoRediscover vouchers to stimulate domestic tourism.

The launch of the initiative last year has offered hotels and tourism-reliant businesses some respite as locals are allowed to use these vouchers for staycations and local tours.

The crisis has also forced travel agencies to revamp their business models and adopt an asset-light approach, which should serve them well once the pandemic has passed.

Licence fees for hotels, travel agents and tour agencies will continue to be waived for 2021 until the sector sees a recovery.

Strong pent-up demand for holidays is evident: as of 9 March, more than 530,000 Singaporeans have used their SingapoRediscover vouchers.

Some tour guides have reported being almost fully booked for the upcoming March school holidays.

Companies such as Straco Corporation Limited (SGX: S85) and Genting Singapore Ltd (SGX: G13) stand to benefit.

Cruise companies such as Royal Caribbean Cruises Ltd (NYSE: RCL) and Carnival Corp (NYSE: CCL) are seeing healthy demand, with prices of cruise holidays expected to rise as people book tours for 2022 and beyond.

Hospitality

Finally, the hospitality sector will see a boost once aviation and tourism are revived.

Hotel occupancy rates have plunged in the wake of border closures as travel was curtailed.

The recovery should benefit hospitality REITs such as CDL Hospitality Trust (SGX: J85) and Ascott Residence Trust (SGX: HMN).

Singapore’s blue-chip property developers should also enjoy an uplift for their hotels segment once people can tour again.

Both City Developments Limited (SGX: C09) and CapitaLand Limited (SGX: C31) stand to benefit from higher tourism numbers as their retail portfolio will also see a recovery.

Get Smart: A brighter outlook

The outlook has brightened noticeably since the dissemination of the vaccines.

Although there have been logistical challenges, countries should soon sort these out and administer the vaccine to their populations.

Investors can look forward to better days ahead as the world triumphs over the pandemic.

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Disclaimer: Royston Yang owns shares in SATS Ltd.

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