Sanjay Sharma
Sanjay Sharma is a Senior Financial Services Analyst for the Canadian region at Mintel. He researches and writes reports on the Canadian financial services industry.

Global financial markets have faced significant declines and high volatility over the last few months, amid worries about COVID-19. Lifestyle impacts, changing consumer behaviours and worries over supply chain disruption have had a telling negative effect on the Canadian and global economy. It is already certain that a recession is underway. The only question remains for how long.

While most governments and private companies in these economies are initiating more stringent social distancing measures to contain the spread of the outbreak, the economic damage to the global economy could be significant. On the positive side, there is an aggressive policy response across the world to shore up businesses and workers, maintain liquidity in markets and inject stimulus to create the necessary conditions for a more robust recovery from this shock to the global economic system. Those closest to retirement or in retirement are likely to feel the effects more as they have less time to wait for markets to rebound. When the economy recovers after the containment of the pandemic, it is likely that investors will revert to their regular investing mode.

More than two in five Canadians are concerned about exposure to the virus and nearly half worry about the impact on their lifestyle, according to Mintel’s Global COVID-19 Tracker (Canada, June 18-27, 2020.) This has brought about changes in the use of bank branches, increased digital payments, less cash and lowered face-to-face contact with financial advisors, insurance brokers, etc. Canadians have increasingly gone online for shopping and this has extended to financial transactions as well. Although banks are an essential service and branches remain open, albeit with significantly reduced hours, Canadians are minimizing in-person contact. They are likely to use branches only if they have to and are likely using phone/digital chat to communicate with their financial advisors.

More than two in five Canadians are concerned about exposure to the virus and nearly half worry about the impact on their lifestyle.

Canada’s housing sector will see a retreat in prices, sales and building in the months ahead and likely won’t see a return to pre-pandemic levels until at least the end of 2022, according to Canada Mortgage and Housing Corporation (CMHC) in an outlook released at the end of May 2020. CMHC said average housing prices could fall anywhere from 9-18% in its forecast and as much as 25% in oil-producing regions. In the faster recovery scenario, prices could start to recover by mid-2021, while with a slower recovery prices might not be back to pre-COVID-19 levels at the end of 2022. The more pessimistic scenario could see deferred mortgages turning into foreclosures if the job market doesn’t recover and bank loan losses increase. Uncertainty in the housing market will also affect new home building, which could see declines of between 50% and 75% this year compared with pre-COVID-19 levels before starting to rebound next year.

Rise of socially responsible investing (SRI)

SRI broadly refers to investments that both offer market-rate returns and have a positive impact on society and the environment. It can be used to cover everything from divestment from companies seen as doing harm, to limiting investment to companies that do measurable good (ie impact investing).

Investors will look for companies that have a durable and socially responsible supply chain in place. While social factors, like employee health and safety, had previously been overshadowed by climate change in the environmental, social and corporate governance (ESG) space, they are now moving to the forefront, as companies will be remembered for how they treated their people and the communities in which they operate.

During the financial crisis of 2008-2009, the world’s premier corporate sustainability and responsible investment initiatives, the UN Global Compact and the UN Principles for Responsible Investment (PRI) experienced an above-average increase in membership and a spike in engagement. The same is true in the current crisis. Members of both organizations have been working on the building up of capacities to better manage ESG factors. There is a belief that the manner in which companies interact with their stakeholders will be irreversibly transformed.

Technology sector is also thriving

With $97 billion in assets as of the end of 2019 (per industry estimates), funds falling under the technology theme are the most popular of global thematic fund assets. The strength of technology stocks during the COVID-19 pandemic suggests this trend will continue. In early May 2020, Shopify (the Canadian e-commerce company), moved past RBC to become the largest company in Canada by market capitalization. Shopify’s near 90% increase this year has put it in the No. 1 spot on the S&P/TSX Composite Index but other tech companies such as Kinaxis Inc. and Real Matters Inc. are close behind, up 70% and 67%, respectively.