Financial Implications of A Second National U.K. Lockdown

Just like a strong coffee, the likelihood of a second wave of coronavirus cases, and a second national U.K. lockdown, has been brewing for a long time. However, is it possible that, with new government restrictions, colder weather conditions, and the experience of a first national lockdown, the next month will have different effects and consequences than the previous lockdown? Let's discuss...

The new government restrictions, that were announced by Boris Johnson late on Saturday night, but won't come into effect until Thursday this week, will see the implementation of the following restrictions until at least December 2nd:

- Pubs, restaurants, and bars will close, but takeaways and deliveries will still be available

- All non-essential shops/retail will close, along with gyms and hairdressers

- There will be no social mixing between households, apart from childcare and essential support

- International and domestic travel will be discouraged, except for work purposes

- Religious services will stop, but private prayer can continue in places of worship

- The furlough scheme will be reinstated (just as it was dying out), in which 80 per cent of wages will be paid to employees who are unable to work as a result of these new measures

This is probably the most succinct and concise version of the new rules that you have seen so far, but it still leaves more questions than answers. For example, what will happen to the recently established local tier system during this time? Why are schools, universities, and construction sites allowed to remain open, but the hospitality sector isn't? How will the rest of the U.K. remain congruent with Boris' latest laws, when there have consistently been clear differences in Scotlands', Wales', and Irelands' Covid-19 policies in recent months? And, most pressing of all, why has there been such a delay to enforce a second national lockdown?

Boris and co already came under intense scrutiny for their handling of the first lockdown. While other countries were enacting stringent nationwide lockdown laws, the Prime Minister was delaying the inevitable and being inconsistent with his policy, all while letting the infection rate and U.K. coronavirus death tally increase at an exponential rate. This indecision, inconsistency, and incredulous laissez-faire attitude, characterised the government's treatment of the pandemic in the first nine/ten months of 2020. After Boris Johnson recently stated that another national lockdown would be "completely wrong for this country" and "disastrous," it is clear that, with him announcing the second lockdown measures over the weekend, this fickleness has not subsided. And, what's more worrying, it threatens to continue going forward...

What can we expect to see happen in various industries?

Hospitality was one of the hardest-hit industries in the first half of the calendar year. With restaurants, pubs, bars, and clubs all closed, the industry crumbled, and was eventually rescued (too little too late?) by Rishi Sunak's Eat Out to Help Out Scheme. While this time, takeaways and food deliveries will be permitted, don't expect to be back in your local Pizza Express, Nando's, or Pret A Manger any time soon. Hospitality staff will likely be furloughed once again, or, depending on the gravity and duration of this second wave, they could be permanently laid off.

Boris Enjoying His Last Trip To 'Spoons' Before Lockdown

What Hospitality Investments Could Be Worth A Look At?

As aforementioned, takeaway and food deliveries will continue, despite the closure of the physical restaurants. As a result, companies such as Dominos Pizza, or online food aggregators such as (owner of Just Eat), or Uber Technologies (encompasses Uber Eats) could be set to benefit from a surge in online demand.

Retail endured a terrible H1 2020, with the industry suffering a similar fate to hospitality. Helen Dickinson, the Chief Executive of the British Retail Consortium, claimed that non-essential shops lost out on £1.6bn per week during the first lockdown. The saving grace of the industry was the performance of online retailers and fast fashion sites such as ASOS and Boohoo. ASOS' share price is up 319 per cent since March 17th, while Boohoo, despite being embroiled in a supply chain maltreatment controversy, is up 44.74 per cent in the same period.

What Retail Investments Could Be Worth A Look At?

With non-essential shops closed, will there be another rush for toilet paper? Will supermarkets and their home delivery services, such as Ocado, Tesco, and Waitrose, thrive once more? The answer is; probably...with limited options for groceries and many unable to travel to a physical store, the online supermarket services that formed the so-called 'stay-at-home basket' will inevitably fare well once again. Non-food retailers, including your favourite high-street stores, may not suffer the same cruel fate as during the first lockdown. This is because, as we head towards Christmas and the festive period, clothing and other retail items will be in increasing demand. With the closure of physical stores guaranteed until December 2nd, millions will be forced to buy Christmas presents for their loved ones online. And, while total consumer spending may fall compared to previous Christmasses (due to the loss of countless jobs, the decreasing welfare of many families, and the general trends witnessed so far this year), you can still count on some retailers to do well online. ASOS and Boohoo are two to watch again in the fashion industry!

Leisure, Fitness, and Sport normally go hand-in-hand, but, while sports events were cancelled across the globe in the first half of 2020, the leisure industry boomed (in some aspects). For example, while the English Premier League was played behind closed doors, revenue from crowds obviously fell to zero. However, although many couldn't go and watch their favourite professional team play football, they still got involved by getting active themselves! Gym sales had recently risen, although they'll now fall due to the closure of all gymnasiums across the country. The work-from-home lifestyle saw many buy weights, cardio machines, other gym equipment, and subscriptions to virtual workout/fitness apps. The Peloton share price is up 271 per cent YTD, while Nike is up over 90 per cent since the end of March.

Will Peloton and similar businesses see a spike in sales over Christmas?

On the leisure side, with bowling alleys, cinemas, mini-golf, and similar attractions all closed once again, it's going to be a brutal winter ahead for the industry.

What Leisure/Fitness/Sports Investments Could Be Worth A Look At?

Gym companies will now face a crisis. Memberships will be frozen, cancelled, or withdrawn, and, at the likely height of the second wave of infections, many will fear going back to the gym during the festive period (if gyms are even open by then). On the other hand, gym equipment companies, such as the aforementioned Peloton, should thrive. Every dad who can no longer go to the gym at work will want a cross-trainer or treadmill for Christmas, while those who like to cycle, but who don't like cycling enough to do it in the freezing cold November/December conditions, may be tempted into buying a static indoor bike.

Again, companies such as Nike, that offer workout programmes on their subscription-based apps, are worth consideration.

The technology sector was the big winner of the first phase of Covid-19. FAANG stocks (Facebook, Amazon, Apple, Netflix, and Google) all boomed, due to increased demand from stay-at-home workers and lockdowned families. Zoom Communications' share price is up a whopping 571 per cent YTD! One can't help but feel that a second lockdown in the U.K. will once again see Zoom reign supreme and regain its place at the centre of distanced families' lives, business meetings, and online birthday parties.

Using Zoom to catch up recently with Lord Mervyn King for a University of Birmingham Economics Society Event

What Technology Investments Could Be Worth A Look At?

Amazon is always a major beneficiary of the winter festive period, and this is unlikely to be different this year. The site's Prime feature means that last-minute Christmas shopping, same-day grocery delivery, and unlimited video streaming, are all easily accessible. Similarly, while students and young people are still able to go to university, school, or college, Netflix could see a rise in demand for subscriptions from an older demographic of non-essential workers, who are advised to work from home.

The work-from-home lifestyle during the first lockdown earlier this year saw cloud-based content delivery firms such as Fastly, and cybersecurity software companies such as FireEye, outperform. A prolonged period of similar restrictions could see a resurgence in the stock price of businesses in these industries.

We're in an era of technological advancements, and it seems that an investment in most tech companies right now could potentially lead to an incredible medium-term return on investment. The longer the lockdown lasts, the greater the influence that tech companies will exert on the stock market.

Other Industries That Deserve A Mention

The U.K. utilities industry could do well in the next months, given the restrictions. More people will need to stay at home, subsequently increasing domestic demand for electricity, gas, and water. Working from home also requires a strong broadband connection, and winter weather generally leads to increased household expenditure on heating, so companies like BT and United Utilities are well-primed to succeed.

The global aviation industry was devastated by Covid-19 in the first half of this year, and, with new regulations in the U.K. imposing a ban on [non-work-related] international travel, demand for flights will surely fall once again. While global figures should not be affected as much as they were during the first lockdown, U.K. budget airlines, such as EasyJet and Ryanair could suffer. At this point in time, the idea of a Christmas or New Year vacation abroad seems like a far-cry due to the likelihood of Boris' laws being extended, so the tourism, travel, and aviation industries could also suffer a grim fate this winter.

When will the aviation industry take flight again?

Final Thoughts

Boris Johnson is in trouble. Having previously disregarded the advice of scientists to go into a full national lockdown as soon as possible earlier last month, he now faces criticism and condemnation from the British public, politicians, and the media for taking so long to make a decision. In the meantime, some of the U.K.'s most important industries could be in for a harsh winter. A lot depends on whether the R rate of infections falls significantly within the next month to suggest that lockdown measures could ease quickly, but many are not so optimistic.

This article was not intended to be a comprehensive roundup of all industries and the likely effects of second lockdown. Instead, I wanted to make you think about what new restrictions could mean for certain sectors, companies, and industries.

We can't necessarily expect to see the same trends in the stock market as during the first lockdown. The macroeconomic situation has evolved, we now have the experience of a national lockdown, and many stocks had probably already priced in the possibility of a second lockdown in their share prices. Wintertime always leads to more desperation, not just in terms of working harder to support the family or secure that Christmas bonus at work, but also in terms of rushing to buy Christmas presents, stocking up on plenty of food, and keeping the household warm over the festive period. It will be fascinating to see what trends emerge in the markets, and, hopefully, the lockdown measures will be eased on December 2nd, accompanied by a substantial fall in the R rate, so that we can all enjoy the New Year festivities!

What market trends are you looking out for? What stocks do you think will outperform as a result of the second lockdown? Let me know in the comments section below!


The Student Investor is not a registered investment, legal or tax advisor or broker/dealer. All opinions expressed by The Student Investor are from the personal research of the author, and are written for educational purposes only. Although best efforts are made to ensure that all information is accurate and up-to-date, occasionally unintended errors and misprints may occur. Please note that the value of your investment can go up or down, and The Student Investor takes no responsibility for any decisions made by readers.