Market and coronavirus update, page-5

Market update - 25 March2020

BY ANDREW CLIFFORD, 25 MAR 2020

The coronavirus (COVID-19) is nowhaving an all-encompassing effect on our daily lives. A large number ofcountries are now in various forms of lockdown, there is little else in ournews and markets have fallen a long way as economies suffer.

The economic impact of removing labouras an input is real, however, it is also likely to be transient at a systemlevel. There will be individuals and companies that suffer bankruptcy, but postlockdown, a semblance of normality will return in time as China is starting toshow.

Many governments are providing financial packages to redistribute the impactand implementing policies to limit physical interactions between citizens.Evidence from Wuhan (China), Iran and regional Italy, which started earliest,provide encouraging signs of the impact of lockdowns. Japan, Korea andSingapore appear to have done well to keep on top of this from the start.

Central banks are providing additional liquidity, yet we are still experiencingone of the most extreme moves downward in global market history. When we lookback this will rank alongside 1987, 2001 and 2008 in modern market events.

We are fortunate to have a virologist within the team. Dr Bianca Ogden isclosely tracking the evolution of the science and medical response and isencouraged with the progress scientists …

We have continued to be very active inportfolios on both the long and the short side, and maintain a cautious bias topositioning. In recent days our internal dialogue has certainly shifted towardswhat we should be buying. Markets have also started to give tentative signs ofstabilising. Dealing with a crisis is about protection on the way down, and tosome extent, capturing the opportunities for the way back up.

If we use the GFC for its parallels, there was clear evidence that within 3-5years sectors of the economy can recover and exceed their prior peaks.

In recent days, with the Australian dollar falling below 60c we have started toadd some AUD exposure in our flagship portfolio. We have also introduced newpositions relating to travel and semiconductors, and have topped up severalexisting positions₁.

All else being equal, one would start to expect the market to look across theprecipice if we continue to see the effect of lockdowns on slowing the spreadof the virus. To bottom, markets simply need investors to be able to conjure upimages of people returning to work; this is vital to economies. There will beconsiderable dislocation in certain areas, with others more robust. Pricespartially reflect this.

It is important to remember that markets anticipate and ‘phase myopia’ leads usto become fixated on near term risks at times like these. Our focus remains onprotecting your capital, but at the same time, careful redeployment intothoughtful ideas is also critical.

At the close of business on Tuesday, 24 March 2020, our invested positionacross the Platinum Trust Fund’s and Platinum Global Fund was as follows:

	Fund	Long %	Short %	Net %	AUD exposure %
1	International	84	(21)	63	10
2	Unhedged	85	n/a	85	1
3	Asia	79	(12)	68	5
4	Europe	96	(2)	94	20
5	Japan	89	(23)	66	0
6	Int’l Brands	101	(31)	70	5
7	Int’l Health Care	92	(5)	87	11
8	Int’l Technology	85	(2)	83	2
9	Global	87	n/a	87	10

To give some perspective on the impact of recent events on the funds, this table provides the returns from what could best be described as the start of this sell-off: the peak on Thursday, 20 February 2020 until Monday, 23 March 2020 close. This precedes the strong bounce on Tuesday.

	Fund	Return
1	Platinum Asia Fund	-5%
2	Platinum International Health Care Fund	-12%
3	Platinum Japan Fund	-14%
4	Platinum International Fund	-15%
5	Platinum International Technology Fund	-16%
6	Platinum International Brands Fund	-22%
7	Platinum Global Fund	-23%
8	MSCI AC World Net Index	-23%
9	Platinum Unhedged Fund	-25%
10	Platinum European Fund	-31%
11	Market
12	MSCI Japan Index	-11%
13	MSCI AC Asia ex Japan Index	-15%
14	MSCI AC Europe Index	-25%
15	ASX 300 Index	-36%

www.platinum.com.au/Insights-Tools/The-Journal/Market-update-March-25