July Folio Update – Week 1

July 2, 2020

The ASX continues to be in a sideways trend. Broke the 6000 points support level.

We’re quite happy with the companies and sectors we’re researching. There are still opportunities to be found for long term value investing. Looking for disruptors and companies that can withstand short term turbulence.

We encourage investors to develop the mindset of ignoring the noise, and look at facts. The recession is going to end like every other recession before this.

The focus and market outlook appears linked to the risk of death from COVID, not so much the number of infections. Sentiment seems to be, life must go on, people need to work, children need to study, sport needs to be played.

J.P. Morgan conducted a recent survey of 130 CIOs around the globe (majority US). Here are some key insights from it.

  • IT budgets taking a big hit, bracing for the unknown, set to shrink around 5%
  • Pandemic fostering a faster move to the cloud and digital transformations

Some anecdotes form the CIO survey:

“Surprisingly perhaps, as a healthcare organization we are currently realizing a 40-50% reduction in company revenue as services are deferred or patients are staying home. At this point in time, we have cancelled or slowed down capital spend in IT by 60% and furloughed/laid-off approx 20% of IT staff. It remains to be seen what year-end will be like, but it appears Q3 will remain mixed and Q4 could end with a dramatic rise.”

“We have seen an elevated interest and support for advancement of technology, especially around the elements of mobility, data access and remote working. On the flip side, tension in the economy has forced us to rethink priorities – we are not taking things off the list, just shuffling around the order of the list. We will likely reduce our spending through 2020 by 10% – 20% but expect 2021 to increase by more than that.”

“Investment in support and expansion of remote technology to support production workflows will increase. Developing more relationships with larger service providers where we can leverage a cross set of skills to deliver quicker. COVID-19 is costing us on average a 20% impact on budget due to replacement of older technology that does not support a lot of remote platforms or the applications that are more often run in a fat client environment locally on premise.”

“IT will play a strong role in supporting the business during the post COVID-19 era. Technology will become more embedded and automation through robotics will gain focus and push to optimize business spend. IT budget will expand as it will continue to generate more value to the business through advancement of technology. Further expansion of spend will come with introduction of collaborative tools to support a remote workforce.”

“2020 spending will be reduced by about 10% primarily through headcount and travel freezes. We expect 2021 to pick back up to pre-2020 spending levels and expect incremental investments in digital solutions to support COVID-19.”

Local update

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