2020 has been a tumultuous year, and as we look forward to 2021, the “K-shaped” economic recovery we’re in cannot be ignored. This type of recovery isn’t all that new— in fact, the world saw such a recovery in 2008.
What the “K-shaped” economic recovery is
When an economy is bouncing back from a recession and starting to expand again, economists have an alphabet of the letter to describe said recession and recovery. We’ve all probably heard of the “V-shaped”, U-shaped”, W-shaped and “L-shaped” economic recessions and recoveries.
The “K-shaped” economic recovery, is characterised by a stark split in the recovery pace of the economy— some sectors are bouncing back ahead of the rest at a much faster pace, while others are continuing a downward trajectory. The split in the recovery pace therefore resembles the letter ‘K’. This begs the question, which industries are doing well, and which aren’t?
What the “K-shaped” economic recovery looks like.
Image source: https://www.uschamber.com/series/above-the-fold/what-the-k-shaped-recovery
The lower and upper curves of the “K-shaped” economic recovery
The industries that are on the upper curve are technology plays, large corporations, governments, and public utilities. While these are industries that may bounce back faster than the rest, the industries on the lower curve, who are suffering the fallout from the COVID-19 pandemic, are the travel, entertainment, hospitality and food services industries. However, there is a way for businesses in most sectors, even those on the lower curve, to find a way to thrive. That is— leveraging digital.
Digital transformation is key
All companies need to digitally transform themselves to keep up with the “K-shaped” economic recovery. The private markets are also becoming increasingly digital and individualised as a result.
For investors looking at the private markets, it’s essential for them to be selective when picking specific sectors that will benefit from this polarised recovery. In fact, there are opportunities to invest in companies that have plans to “jump” from the lower ‘K’ curve to the upper ‘K’ curve, by raising private capital and thereafter digitally transforming themselves.
Private companies that strategically and effectively adopt digital initiatives during this “K-shaped” economic recovery, will likely see their indicators pointing upwards. A large part of this would come from digital technology enhancing the customer experience. Online interactivity, either through mobile apps or websites, are essential in this age of social distancing and COVID-19 measures. Companies that are able to streamline customer journeys with digital technology, will likely reap the benefits from both increased patronage and cost savings.
Digital technology also includes the ability to gain more insights into customer habits that can help shape future customer-centric activities. A company that can gain access to, and leverage, the large datasets that big data offers, will be positioned for success more often than not, due to the significant competitive advantages that will come about as a result.
Opportunities for investors
Investors can start looking out for such companies, with a view to include them into their investment portfolios where opportunities arise. Winning portfolios would include investments that are ahead of the others in recovering from the economic impact of this pandemic. These companies who are recovering ahead of others and adopting digital technology and data mindsets in the post-COVID-19 environment, will likely be seeking growth capital as well as other liquidity options.
CapBridge Financial is actively screening and selecting such investment opportunities. Together with 1exchange, the global marketplace for FIT™ digital assets, we offer deal discovery, distribution and tradability.
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