By
Andrew Clifford,
Andrew co-founded Platinum in 1994 as the Deputy Chief Investment Officer, having worked alongside Kerr Neilson for several years at Bankers Trust and perfecting the craft of uncov ... More
02 Apr 2020
The benefit of lockdowns around the world is showing in the data and it is increasingly clear the dialogue is shifting to how we get back to work, led by China’s example.
We are likely at the base in terms of labour being removed from the system, and we have had government and central bank intervention to avert a worst case scenario. However, the real recovery starts when we collectively get back to work and the economy will follow the shape of employment, rather than a letter of the alphabet.
We could use 2008-09 to get a sense of how long a full recovery might take, but as factors of production are intact, it could be much quicker. Markets have punished the most directly impacted (travel, oil and cyclicals) and in doing so have further stretched the much highlighted gap between "growth and defensives" ("certainty") and everything else.
To survive this period, balance sheets are important and equity raisings will dilute holders of some stocks. There is buying to be done; ours has focused on travel, semiconductors, autos, industrials, biotechnology and high quality financials.
Longer term, we will have to pay for the government stimuli and expect further spending to build confidence, after the biggest economic collapse in history. This could be targeted for example at encouraging the build-out of 5G networks or in Europe, this might be around electric vehicles and renewable energy.
So far, the recovery off the market lows is consistent with historical bear market rallies. Our base case is that there will be waxing and waning in sentiment which could cause us to retest the lows (e.g. if there is a pick-up in infections) and what will be critical for us is to determine when to transition to a more fully invested position by relaxing the short positions. This is likely to be done on market moves downwards from here.
We can see potentially good outcomes from medical advances that exceed market expectations. Our edge here comes from having virologist, Dr Bianca Ogden in the investment team, and she points out that testing capacity and tracing activity continue to increase in the US and UK, while elsewhere the benefits of social distancing are more visible. With New York at the epicentre of the pandemic, the world has been focused on its impact there and how in general, the world will manage when economies restart.
Bill Gates has committed to investing in seven manufacturing sites for the top vaccine candidates prior to approval of the vaccines and Moderna[1] started the last cohort of its vaccine trial. Gilead CEO, Dan O'Day has continued to highlight the company’s manufacturing expansion for remdesivir as well as donating 1.5 million dosages of remdesivir (which will treat 140,000 patients). Furthermore, other companies, including Fujifilm are also expanding manufacturing of repurposed antivirals.
Countries across the world are at different stages in terms of the criticality of the situation, with the US at the current epicentre. Australia, appears to have been quite lucky on a relative basis, with the "tyranny of distance" acting as a natural advantage here. Our regional portfolio managers are closely watching the impact of the situation on their coverage areas. We think China will set the example for exiting lockdown and hence our experience here is an edge we hope to capitilise on.
Dr Joseph Lai, who runs the Platinum World Portfolio - Asia Fund, points out that in China, domestic economic activity has bounced back with a range of activities back to "normal" levels e.g. coal consumption, E-commerce volume, express parcel delivery volume, property sales for developers and construction activities. Most shopping malls and restaurants have re-opened and customers have started to return. Although dining-in is still lacklustre, take-out food has recovered. In India, the lockdown started on 24 March and was initially planned for three weeks (to 14 April). Discussions on how and when a restart can happen are ongoing.
Our Platinum World Portfolio - Japan Fund portfolio manager Scott Gilchrist observes that Japan’s stable social structure and proven historic ability to reinvent itself should be a relative benefit in this unsettling environment. With current valuations and sentiment towards the country, the medium-term prospects for the Japanese stock market are relatively attractive.
Nik Dvornak, who runs our European strategy[2] thinks that we are seeing infections peak and despite the human tragedy we have observed, countries are beginning to plan and some are starting, their return to normalcy. Government balance sheets are in good shape, which coupled with conscientious social policy provides the ability to soften the blow for enterprises and workers alike. To conclude, this situation will be resolved in time and we will ultimately see a recovery. The key decision for us at a global level will be when to release the handbrake of the short book.
Below we publish the most recent portfolio exposures for the Platinum World Portfolios as at the close of business on Wednesday, 8 April.
Fund | Long % | Short % | Net % |
International | 87 | (23) | 63 |
Asia | 87 | (3) | 84 |
Japan | 87 | (25) | 62 |
[1] We own Moderna and Gilead in the PWP - International Fund
[2] This strategy is not available outside Australia and NZ
DISCLAIMER: This information has been prepared by Platinum Investment Management Limited ABN 25 063 565 006 AFSL 221935, trading as Platinum Asset Management ("Platinum") the investment manager of Platinum World Portfolios plc ("PWP"). Platinum World Portfolios plc ("Company") is an investment company with variable capital incorporated with limited liability in Ireland with registered number 546481 and established as an umbrella fund with segregated liability between sub-funds pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (as amended) ("UCITS Regulations").
This information is accurate at the time of publication. This information is general information only and has not been prepared taking into account any particular investor’s investment objectives, financial situation or needs, and should not be used as the basis for making an investment decision. You should obtain professional advice prior to making any investment decision. The market commentary reflects Platinum’s views and beliefs at the time of preparation, which are subject to change without notice. No representations or warranties are made by Platinum as to their accuracy or reliability. To the extent permitted by law, no liability is accepted by Platinum or any other company in the Platinum Group, including any of their directors, officers or employees, for any loss or damage arising as a result of any reliance on this information.
Investing is not without risk. Neither Platinum, any company of the Platinum Group, nor any of the respective directors and officers of the aforementioned, guarantee the performance of any investment product, strategy or fund referenced herein, the repayment of capital, or the payment of income. Past performance is not a reliable indicator of future performance.
Platinum UK Asset Management Limited ("Platinum UK") has been appointed as a sub-distributor of PWP. Platinum UK is a tied agent of Mirabella Advisers LLP, which is authorised and regulated by the Financial Conduct Authority - number 606792. The content has been approved by Mirabella Advisers LLP. In the United Kingdom, this information is aimed solely at professional clients within the meaning of Article 4.1(10) of the Markets in Financial Services Directive 2014/65/EU (MiFID II) ("Relevant Persons"). No UK person other than a Relevant Person should act or rely on this information.
This information is accurate at the time of publication. This information is general information only and has not been prepared taking into account any particular investor’s investment objectives, financial situation or needs, and should not be used as the basis for making an investment decision. You should obtain professional advice prior to making any investment decision. The market commentary reflects Platinum’s views and beliefs at the time of preparation, which are subject to change without notice. No representations or warranties are made by Platinum as to their accuracy or reliability. To the extent permitted by law, no liability is accepted by Platinum or any other company in the Platinum Group, including any of their directors, officers or employees, for any loss or damage arising as a result of any reliance on this information.
Investing is not without risk. Neither Platinum, any company of the Platinum Group, nor any of the respective directors and officers of the aforementioned, guarantee the performance of any investment product, strategy or fund referenced herein, the repayment of capital, or the payment of income. Past performance is not a reliable indicator of future performance.
Platinum UK Asset Management Limited ("Platinum UK") has been appointed as a sub-distributor of PWP. Platinum UK is a tied agent of Mirabella Advisers LLP, which is authorised and regulated by the Financial Conduct Authority - number 606792. The content has been approved by Mirabella Advisers LLP. In the United Kingdom, this information is aimed solely at professional clients within the meaning of Article 4.1(10) of the Markets in Financial Services Directive 2014/65/EU (MiFID II) ("Relevant Persons"). No UK person other than a Relevant Person should act or rely on this information.