Downturns tend to be infrequent and swift: since the second world war America has
been in recession only 14% of the time. But they have a profound impact on the
structure of business. During the previous three slumps the share prices of American
firms in the top quartile of each of ten sectors rose by 6% on average, while those in the
bottom quartile fell by 44%.
This time there have been some obvious winners. Silicon Valley’s prospects have soared
as users have switched to digital services (see next leader). China Inc has had another
great leap forward. Its domestic economy has outperformed most other countries’ and a
wave of initial public offerings, including the fizzy flotation of Nongfu Spring, a bottled
water colossus, has highlighted the strength and depth of Chinese firms. Their share of
world stockmarket value (including Hong Kong) is now 17%, up from 15% before the
pandemic and 13% a decade ago.
Winners and losers
Some success stories have been more unexpected. The Poonawalla family in India, who
until recently were as well known for their stud farms as for their vaccine business,
have seen their fortune rise by 62% to $14bn, according to Bloomberg. The container-
shipping industry has spent years merging into a more efficient structure: the effort has
paid off, with Maersk, the largest firm, predicting solid profits in 2020 despite a slump
in trade. SoftBank, a Japanese conglomerate known for its wild tech bets and huge debts,
has turned a crisis into an opportunity by announcing $80bn of asset sales. Gold-mining
companies, long viewed as dead money, are back in fashion because some investors
think huge government stimulus will lead to a bout of inflation in which bullion is one of
the few assets to hold its worth.
What about the losers? Judged by the bottom line, business is in worse shape than in the
subprime crisis: in the first half of 2020 more than 40% of America’s top 3,000 listed
firms made losses, compared with just over a third in 2009. But default rates in America
remained low, with only about 5% of junk bonds in default and about 4% of business
credit cards in arrears.
In 2021 this unreal world won’t last. Governments will reduce new aid and pivot away
from keeping individual firms alive and towards making sure workers have help if they
lose their jobs. The gap between companies will also widen because stronger ones will
maintain investment as others cut back. By mid-2020, capital spending at the ten
highest-spending listed American firms was still 3% higher than a year earlier, but had
dropped by 82% at the smallest 1,000 firms.
The corporate winners from the slump of 2020-21 will tend to be big firms that benefit
from technological disruption and have exposure to better-performing economies,
notably in Asia and America. Yet they face a tricky post-pandemic environment as the
rules of the game between business and society are recast.
Firms will be under pressure to pay less attention to shareholders and more to workers.
The pace of global buybacks almost halved in mid-2020 and won’t bounce back fully
even as profits recover. The stagnation of globalisation means that more multinationals
will have to operate as federations of national businesses and will be unable to reap the
full efficiency gains from being run as a single globally integrated organisation. And as