alt
Welcome
  • Funds

    Products

    • Mutual Funds
    • ETFs
    • SmartRetirement Funds
    • 529 Portfolios
    • Money Market Funds
    • Commingled Funds
    • Featured Funds

    Asset Class Capabilities

    • Fixed Income
    • Equity
    • Multi-Asset Solutions
    • Alternatives
    • Global Liquidity
  • Investment Strategies

    Investment Approach

    • ETF Investing
    • Model Portfolios
    • Separately Managed Accounts
    • Sustainable Investing
    • Variable Insurance Portfolios
    • Commingled Pension Trust Funds

    College Planning

    • 529 College Savings Plan
    • College Planning Essentials

    Defined Contribution

    • Retirement Solutions
    • Target Date Strategies
    • Full-service 401(k) Solution
    • Retirement Income
  • Insights

    Market Insights

    • Market Insights Overview
    • Guide to the Markets
    • Quarterly Economic & Market Update
    • Guide to Alternatives
    • Market Updates
    • On the Minds of Investors
    • Principles for Successful Long-Term Investing
    • Weekly Market Recap

    Portfolio Insights

    • Portfolio Insights Overview
    • Asset Class Views
    • Equity
    • Fixed Income
    • Long-Term Capital Market Assumptions
    • Monthly Strategy Report
    • Sustainable Investing

    Retirement Insights

    • Retirement Insights Overview
    • Guide to Retirement
    • Principles for a Successful Retirement
    • Defined Contribution Insights
  • Tools

    Portfolio Construction

    • Portfolio Construction Tools Overview
    • Portfolio Analysis
    • Model Portfolios
    • Investment Comparison
    • Bond Ladder Illustrator

    Defined Contribution

    • Retirement Plan Tools & Resources Overview
    • Target Date Compass®
    • Core Menu Evaluator℠
    • Price Smart℠
  • Resources
    • Account Service Forms
    • Tax Planning
    • News & Fund Announcements
    • Insights App
    • Events
    • Library
  • About Us
  • Contact Us
Skip to main content
  • Account Login
    • Login
    • Register
  • Welcome
    • My Collections
    • Logout
  • Role
  • Country
  • Shareholder Login
Search
Menu
CLOSE
Search
You are about to leave the site Close
J.P. Morgan Asset Management’s website and/or mobile terms, privacy and security policies don't apply to the site or app you're about to visit. Please review its terms, privacy and security policies to see how they apply to you. J.P. Morgan Asset Management isn’t responsible for (and doesn't provide) any products, services or content at this third-party site or app, except for products and services that explicitly carry the J.P. Morgan Asset Management name.
CONTINUE Go Back
  1. Home
  2. Insights
  3. Portfolio Insights
  4. Equity research: Remaking stakeholder relationships after COVID-19

  • Share
  • LinkedIn Twitter Facebook Line
  • Print
  • Actions
  • LinkedIn Twitter Facebook Line
    Print

Equity research: Remaking stakeholder relationships after COVID-19

07/06/2020

Mark Ferguson

Like many long-term investors, we’re thinking about the potential long-term effects of the COVID-19 crisis. These are early days, of course, but we believe the effects of the pandemic could potentially shift relationships among corporations, their stakeholders and the state in ways that could have important long-term implications for equity investors.

In this article, we consider two themes on this subject: ESG and the rebalancing of company stakeholder interests; and fiscal stimulus and the likelihood of higher taxes and swollen government debt.

ESG and the rebalancing of stakeholder interests

Since the first coronavirus outbreaks, many companies have made an effort to help workers and customers who are particularly vulnerable to the financial and health risks associated with COVID-19. Often that has led to actions that are more favorable to stakeholders (including workers and society at large) and potentially less favorable to shareholders in the near term, although it is unclear how permanent this shift may be.

Among those actions are cuts in dividends and buybacks. This reverses a post-financial crisis trend of rising dividend payout ratios and buybacks, often secured through issuance of corporate debt, particularly in the U.S. Increased dividends and buybacks had been favorable to owners of capital, who saw their returns increase substantially. And in the past 20 years, a growing share of S&P 500 companies have linked CEO compensation to shareholder returns.

Amid the global pandemic, companies are cutting their dividends and buyback programs. At the same time, they are taking action to help their customers and workers. For example, Rightmove, a UK real estate company, announced significant reductions in the fees it collects from independent estate and lettings agents. Banks have announced repayment holidays and U.S. auto insurers have agreed to return a portion of excess profits derived from lower accident frequency due to lower miles driven during the crisis. A leading European luxury goods company is producing hand sanitizer in its perfume factories and plans to distribute 40 million face masks.

In emerging economies, companies are taking similar actions to support their communities, employees and business partners. Shortly after the virus hit, a leading Chinese restaurant chain provided free meals to emergency workers in China’s Wuhan province, where the virus first emerged, and began to roll out health insurance to all its restaurant managers. To help meet demand for personal protective equipment for health care workers, a Belarus-based digital design company developed a surgical mask that can be 3D printed, with design and manufacturing instructions available for free. In Brazil, a major retailer offered various kinds of support to its suppliers, including extended credit lines and guidance on accessing market financing.

We’d already seen corporate social responsibility gathering steam before COVID-19, and the crisis likely increases its importance as a differentiating factor among companies. Once the crisis passes, that importance may recede somewhat, but we don’t think it will disappear. As a result, we could see diminished profitability and reduced dividend payouts in more stakeholder-friendly businesses, especially in Europe. On the other hand, firms that are able to be “part of the solution” to the crisis (for example in the technology, health care and banking sectors) have an opportunity to enhance their standing with regulators and society.

Financial stimulus, higher taxes and sovereign debt

As most countries around the world have deployed unprecedented fiscal and monetary stimulus to mitigate the negative shocks from the coronavirus shutdowns, it seems clear that budget deficits and sovereign debt levels are likely to rise substantially. This may be compounded by increased spending on health care and welfare. As a result, taxes may need to increase to offset this stimulus.

The amount of fiscal stimulus announced so far already greatly exceeds the measures taken during the global financial crisis (GFC) in 2008–09 (Exhibit 1). As governments raise taxes to prevent fiscal deficits from spiraling out of control, we expect that wealthier households will generate a greater share of national tax revenues. Policymakers may have to make key choices regarding the mix of direct vs. indirect taxes (income tax is a direct tax, while a sales tax is indirect) and the taxation of labor vs. capital. Will existing tax credits be eliminated? Will new taxes be introduced? These are among the questions that will impact corporate profits and equity markets.

Announced stimulus greatly exceeds the measures taken during the global financial crisis
EXHBIT 1: CHANGE IN CYCLICALLY ADJUSTED PRIMARY FISCAL BALANCE AS A PERCENT OF GLOBAL GDP

Source: CBO, European Commission, Haver, UBS; data as of June 2020.

It is too early to speculate on what the exact impact of the different policy choices might be on sectors and companies, but the effects could be far-reaching. The upcoming U.S. election adds additional uncertainty: in the event of a Democratic sweep we may see an increase in the corporate tax rate to pay for recent fiscal stimulus. This would likely hurt some of the more domestic businesses that benefited significantly from tax reform in 2018, but we think the impact would be fairly broad-based.

Increased stimulus has been accompanied by much higher levels of sovereign debt issuance, another issue that will have an impact on the corporate landscape. The debt buildup implies that the risk of unsustainable public debts, and of sovereign defaults, is likely to increase meaningfully for many countries. For example, South Africa, which recently lost its investment grade status, will likely soon breach the 80% sovereign debt-to-GDP level, which is often seen in emerging markets as the “trigger point” for sovereign crisis.

Final thoughts

We think the COVID-19 crisis has the potential to shift the relationships among corporations, their stakeholders and the state in ways that might have subtle but important long-term implications, especially in the regulation and freedom of capital deployment. We also think the government stimulus, while welcome in the short term, may lead to higher taxes in the long run, impacting companies in unpredictable ways. We continue to monitor all these risks as we analyze companies and sectors across the global economy.

RELATED INSIGHTS

Equity research: In the wake of COVID-19, the strong get stronger

We look at several trends that are likely to pick up steam: digital transformation, more diversified supply chains and an accelerating shift to factory automation.

Read now

Equity research in-depth: How consumer behavior is changing

The first in a new series of commentary from the Global Research team highlights changing trends in consumer preferences.

Read now

Global Equity Views 3Q20

Investors should be braced for further near-term declines in stock markets. But the combination of highly negative sentiment and attractive valuations presents a solid longer-term buying opportunity.

Read now
Equities Environmental Social And Governance COVID-19
J.P. Morgan Asset Management

  • Capital Gains Distributions
  • eDelivery
  • Fund Documents
  • Glossary
  • Help
  • How to invest
  • Important Links
  • Mutual Fund Fee Calculator
  • Accessibility
  • Investment stewardship
  • Privacy
  • Proxy Information
  • Senior Officer Fee Summary
  • SIMPLE IRAs
  • Site disclaimer
  • Terms of use
J.P. Morgan

  • J.P. Morgan
  • JPMorgan Chase
  • Chase
Opens LinkedIn site in new window Opens Youtube site in new window Opens Twitter site in new window

This website is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purposes. By receiving this communication you agree with the intended purpose described above. Any examples used in this material are generic, hypothetical and for illustration purposes only. None of J.P. Morgan Asset Management, its affiliates or representatives is suggesting that the recipient or any other person take a specific course of action or any action at all. Communications such as this are not impartial and are provided in connection with the advertising and marketing of products and services. Prior to making any investment or financial decisions, an investor should seek individualized advice from personal financial, legal, tax and other professionals that take into account all of the particular facts and circumstances of an investor's own situation.

 

Opinions and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.

 

INFORMATION REGARDING MUTUAL FUNDS/ETF:

 

Investors should carefully consider the investment objectives and risks as well as charges and expenses of a mutual fund or ETF before investing. The summary and full prospectuses contain this and other information about the mutual fund or ETF and should be read carefully before investing. To obtain a prospectus for Mutual Funds: Contact JPMorgan Distribution Services, Inc. at 1-800-480-4111 or download it from this site. Exchange Traded Funds: Call 1-844-4JPM-ETF or download it from this site.

 

J.P. Morgan Funds and J.P. Morgan ETFs are distributed by JPMorgan Distribution Services, Inc., which is an affiliate of JPMorgan Chase & Co. Affiliates of JPMorgan Chase & Co. receive fees for providing various services to the funds. JPMorgan Distribution Services, Inc. is a member of FINRA  FINRA's BrokerCheck

 

INFORMATION REGARDING COMMINGLED FUNDS:

 

For additional information regarding the Commingled Pension Trust Funds of JPMorgan Chase Bank, N.A., please contact your J.P. Morgan Asset Management representative.

 

The Commingled Pension Trust Funds of JPMorgan Chase Bank N.A. are collective trust funds established and maintained by JPMorgan Chase Bank, N.A. under a declaration of trust. The funds are not required to file a prospectus or registration statement with the SEC, and accordingly, neither is available. The funds are available only to certain qualified retirement plans and governmental plans and is not offered to the general public. Units of the funds are not bank deposits and are not insured or guaranteed by any bank, government entity, the FDIC or any other type of deposit insurance. You should carefully consider the investment objectives, risk, charges, and expenses of the fund before investing.

 

INFORMATION FOR ALL SITE USERS:

 

J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.

 

NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE

 

Telephone calls and electronic communications may be monitored and/or recorded.
Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://www.jpmorgan.com/privacy.

 

If you are a person with a disability and need additional support in viewing the material, please call us at 1-800-343-1113 for assistance. 

 

Copyright © 2021 JPMorgan Chase & Co., All rights reserved