Understanding how the Virus has impacted Industries — Mckinsey Report

A look at some of the highlights from a recent Mckinsey Report on private and public equities. There are three charts below that show market valuation changes by industry, debt + disruption by industry, and finally factors of covid disruption by industry.

The first chart below I think highlights what many have been speaking of to date: the K shaped recovery.

If this is the first time you’ve heard of a K shaped recover I will explain it for you. Named K due to one leg going up, the other going down — the COVID divide.

I wrote previously about the new COVID economy and here you have the industries highlighted where the markets have determined which industries can’t compete, and which can.

Interestingly, at least for me, was to see the national differences. A few columns to highlight.

1. China (column 1) — they’ve recovered the best from the pandemic and you can see that reflected in the industries, all grew or stayed flat, but none declined more than 15%.
2. USA (column 3) — Here you can see the first half of the column grew, the middle stayed flat, and the bottom declined severely. The K shaped recovery with tech and healthcare doing well, and consumer cyclical suffering with Travel at the bottom.
3. UK — (column 14) — all stayed flat or declined, the looming Brexit effect. Markets, just like the rest of us, have no idea what’s going to happen and there are plenty of other ponds to fish in until it all gets sorted out.

This second chart looks at a few factors. First the axises — Y is Debt-Service Coverage ratio (how leveraged businesses in those industries are), X is how badly have they been affected by COVID.

Least Vulnerable, the same as in chart 1 — tech and healthcare. Most Vulnerable — highly dependant on consumer spending. Large capital expenditure items (industrial equipment) also suffering due to corporate purchasing decisions (hesitating) and possibly lack of aggregate demand due to lockdowns.

You can see clearly why there is a focus on extending additional debt in government policies and why banking outlook is pessimistic as they will have to take the losses on bad loans along with bondholders.

Chart 3 — Besides being an optical illusion, this chart shows a lot of the same information as the first two, but also shows the factors that the pandemic has exposed as entity risks:

Labour availability, credit, social distancing along with the other column headers. You should think about your own business and the advantages/disadvantages your model has at the moment and where/how you can improve, if you can.

Overall we can clearly see that after 7 -10 months (depending on how you slice it) people are starting to understand how COVID is affecting businesses, industries, and economies overall.

I wrote before about the virus timeline likely being 3–4 years before being able to operate en mass as we did before.

At the moment governments are slow-boiling us like Frogs so we don’t hop out the pot but you can clearly see their messaging and timelines getting longer with most now accepting that vaccines won’t be ready until spring/summer and won’t have a noticeable societal effect until end of 2021 soonest.

So until they take stock, adjust and try to adapt to the new COVID economy.

More McKinsey insights on COVID Here