#Market Strategy — 10.03.2020

COVID is Accelerating Trends in Smart Sustainable City and Healthcare Innovation

Investment Navigator - Asia Version [March 2020]

smart city healthcare


  • In the aftermath of the outbreak, governments are likely to invest more resources to review the public health system, finding ways on prevention, early detection, diagnosis and effective treatment, as well as mitigating risk of economic disruptions for the next epidemic.
  • This will create strong needs for more sophisticated and tech-savvy smart living and more robust public healthcare infrastructure, with the support from new technology and innovation.
  • Potential areas of beneficiaries are: 
  1. Increasing use of online platforms, 
  2. Furthering development in humanless delivery, industrial automation and smart logistics, 
  3. Integrating big data analytical solutions for public health system, and (4) Adopting faster healthcare technology applications.


The current COVID outbreak exposes the shortfall in public health system in many countries. The quarantine and precautionary measures change consumer behaviors and force companies to explore remote working business models.

Businesses and consumers have been shifting further from offline to online. The epidemic further accelerates trend in digital connectivity.

As the affected countries are currently paying huge economic costs and many businesses are facing tremendous short term challenges, in the aftermath of the outbreak, governments are likely to invest more resources to review the public health system, finding ways on prevention, early detection, diagnosis and effective treatment, as well as mitigating risk of economic disruptions for the next epidemic.

This will create strong needs for more sophisticated and tech-savvy smart living and more robust public healthcare infrastructure, with the support from new technology and innovation. Internet of things (IoT), big data, blockchain, artificial intelligence (AI) and 5G are new technologies that have been developing very quickly in recent years.

The COVID outbreak will spark their commercial applications, new innovations and new business models to enhance smart city and smart healthcare much further. 

What are the potential areas of beneficiaries?

Increasing use of online platforms – During the outbreak, new business ideas are already happening. For instance, property developers in China are selling new properties in the virtual world with online discount sales campaign due to the closure of property showrooms. E-commerce, online education, online services and online entertainment are catching up to replace traditional offline businesses.

There will also be more new business models that adopt virtual reality (VR) and augmented reality (AR).

Furthering development in humanless delivery, industrial automation and smart logistics – Usage of robots and machines have become more prevalent than ever in delivery, industrial and logistics amid reducing human-to-human interactions during the outbreak.

The epidemic is adding incentives for entrepreneurs to join the megatrend of IoT and AI to improve industrial automation. The autonomous driving system will also enable new logistics capability.

Integrating big data analytical solutions for public health system – Governments will be keen to create a safer and more health-conscious environment. There will likely be more data sharing, leverage of big data and commercial application of super big data to provide better monitoring, early detection and prevention of the risk of another epidemic in the future. 

Adopting faster healthcare technology applications – There are now some examples of using 5G technology to do remote diagnosis of COVID-19 patients. Broader use of remote diagnosis/therapy/treatment is set to take off. 

Smart sustainable cities of the future

Post the COVID epidemic, governments will identify multiple shortfalls on healthcare as well as the economy as a whole during the outbreak.

They are likely to allocate additional resources and efforts trying to fill the gaps. With some governments already increasing fiscal spending that targets to build a more sustainable city, the epidemic will only accelerate and magnify the urgency to build up new, smart and sustainable infrastructure for the economies.

Many governments would need to co-operate with the corporate sector to create new business and governance models. This implies increasing opportunities for companies with the relevant capability to commercialize certain disruptive technologies with an emphasis on the sustainable design and elements.

As we foresee structural changes on the public health system and towards smart and sustainable economies, there will be very exciting opportunities years ahead in these areas after coming out from the unfortunate event of COVID epidemic. Any deep market corrections are good buying opportunities for these megatrend investment themes. 

COVID is accelerating the digital connectivity trend

Online Shopping as % of Total Retail Sales

Online Shopping as % of Total Retail Sales

software and it services

Software and IT Services as % of Enterprise IT Spending



Key economic views

Key Economic Views


  • The impact of Covid-19 will be stronger than the trade uncertainty that dominated last year. We believe the economic impact of Covid-19 will be temporary, but we cannot predict the extent of the contagion and its duration. The wider the virus spreads and the longer the outbreaks last, the more likely the shock is to trigger second-round effects, and hence a more enduring drag on the global economy.
  • Recent developments of contagion in Italy, South Korea and Iran has suggested that the coronavirus is no longer isolated to just Asia or China. Latest economic data such as PMI in China have also supported our view that the short-term economic impact from Covid-19 will be more significant than the SARS, especially given the growing importance of China in the global economy. 
  • Overall, we expect global growth in 2020 to be 0.4 pp lower at 2.6% due to Covid-19. We see a stronger contrast between a weak H1 2020 and a more pronounced recovery in H2, although the increase in number of cases and deaths outside of China suggests that the shape of the recovery is more likely to be a U than a V.


  • China’s consumer inflation expanded at its fastest pace in more than eight years, as pork prices soared due to the coronavirus epidemic and stronger demand over the Lunar New Year period.  CPI YoY rose 5.4% in January, up from a 4.5% in December, and at its highest point since October 2011. Meanwhile, the producer price index (PPI) rose 0.1% YoY in January, an improvement on the -0.5% in December. The closure of factories during the last week of January for the Lunar New Year period was likely the reason for the insignificant impact on factory gate prices, although this should likely change in the next month. 


Equities global
  • We recently discussed about the possible likelihood of a short term unwinding given the overcrowded US equity market. On the last week of February, we finally experienced a huge unwinding of growth stocks in a big market sell-off. The sharpness of the plunge was a result of how far US equities had climbed and the catalyst was the escalating concerns over COVID-19, particularly given wider spread in Italy, South Korea and Iran. This triggered the global market risk-off and the rush to safe haven assets.
  • We downgrade Consumer Staples from Positive to Neutral and Consumer Discretionary from Neutral to Negative in Asia. The coronavirus outbreak has significantly reduced consumer demand in F&B, tourism, offline retail and hospitality sector, when gathering and events are successively cancelled in China, Japan and Korea. This could possibly spread to other Asian countries in March so near-term outlook remains less optimistic. 
Equities international

Source: MSCI indices in local currency terms, Bloomberg, Datastream, BNP Paribas Wealth Management, as of 28 Feb 2020


Global bond credit
Global bonds

Source: Barclays indices, Bloomberg, BNP Paribas Wealth Management as of 28 Feb 2020

  • The sudden surge in the number of COVID-19 cases out of China (in particular Italy, South Korea and Iran) stoked fears of a larger impact on the global economy during the last week of February. US 10Y treasury yields fell to record low of 1.116% in February, and has progressively trended below 1% in the first week of March as investors continue to rush towards safe heaven assets.
  • The US Federal Reserve announced an emergency cut on 3rd March, lowering the federal funds rate by 50bps to 1% - 1.25%, against the 'evolving risks' coronavirus poses to economic activity. This is the first rate cut the Fed has done outside its normal schedule of policy meetings since the financial crisis in 2008, albeit markets were already fully pricing it in at the upcoming policy meeting in March. The Fed reiterated that they will be closely monitoring developments and will act as appropriate to support the economy. Following the cut, the markets reacted with some skepticism and has gone on to price in an additional 50bp for the meeting on 18th March.
  • Asia hard currency credit performed well in February, up 1.3% for the month, even as the widening of credit spreads offset gains somewhat. We remain cautiously positive on Singapore credit. They are generally considered “expensive”, but are no doubt still the safest bond assets in the region. 


forex view
forex forecast

Forex Forecast


The Chinese RMB was down this year on the back of the coronavirus outbreak, and broke 7.0. Quantifying the economic impact of the epidemic remains difficult, depending on how the virus develops from here and its duration.

We expect GDP growth to be very badly hit in Q1, and the negative impact to continue in Q2. Thus far, the Chinese government has provided a combination of monetary and fiscal support, albeit the effectiveness remains to be seen. We do not expect the USDCNY to move above 7.0 as the shock is already priced in. We see the USDCNH remaining steady and keep our target at 7.00 over the next 3 months.


JPY underwent a sharp depreciation in February and lost 3.46% due to weak GDP and PMI data, which hinted towards a recession. Our 2020 growth outlook for Japan has since been lowered to -0.4% for the year, especially since the Japanese economy is set to be one of the most severely impacted by the coronavirus outbreak, due to weaker Chinese demand, supply chain disruptions and a hit to inbound tourism.

Indeed, the safe heaven status of JPY saw a strengthening during the last week of February as markets risk off, recovering more than what it had lost and ending the month just slightly strong than in January.







Oil prices declined sharply due to worries about the global demand in the wake of the coronavirus outbreak. The situation is aggravated by the lack of storage capacities in Asia. Its impact should however be temporary and we still expect Brent prices to go back in the $60-70/b range in H2 2020. OPEC+ restraints, possible supply disruptions (Libya, Iraq), a slower US shale supply growth and better economic momentum should help a price recovery in the 2nd part of the year.


On the short term, gold is overbought and vulnerable to a consolidation/correction. On the medium term, we remain positive on gold as its key fundamentals remain in place: negative/low and still decreasing real bond yields, ongoing central bank purchases and moderate supply.

Gold jumped to 1680$/oz as the Coronavirus spread outside China. We still like to hold an exposure to gold in our portfolios as a hedge against tail risks, be they inflation, financial instability or geopolitical. We expect gold to trade in the $1535-1735/oz range in the coming months.


Global Macro

We stay positive on global macro. Risk-on bets were generally punished into month end, while long government bonds (on the view of a Fed on hold) and long US Dollar benefited from risk aversion.

Systematic trend following strategies outperformed for the full month of January, but were down during the last two weeks of January. Losses on equities were partially offset by gains on fixed income, precious metals and currencies. Most CTAs have maintained short positions on the EURUSD which were highly rewarding lately.

Event Driven

We remain positive on Event Driven. Merger Arbitrage was up on the back of the tightening of deal spreads for some transactions. Despite heightened market volatility towards month-end, most deal spreads remained stable or tightened.

Managers are optimistic that the US/China trade war truce and the signing of the Brexit agreement should spur a pickup in M&A activity

Click on the link below to download the full report in PDF. In addition to the above content, you get:

Information about BNP Paribas Portfolio Optimizer, a proprietary methodology that we use to advise our clients.

And a quick note from our Discretionary Portfolio Management (DPM) team on Global Sustainable Responsible Investments