Market update – 9April 2020BY ANDREW CLIFFORD, 09 APR 2020The...

Market update – 9April 2020

BY ANDREW CLIFFORD, 09 APR 2020

The benefitof lockdowns around the world is showing in the data and it is increasinglyclear the dialogue is shifting to how we get back to work, led by China’sexample.

Weare likely at the base in terms of labour being removed from the system, and wehave had government and central bank intervention to avert a worst casescenario. However, the real recovery starts when we collectively get back towork and the economy will follow the shape of employment, rather than a letterof the alphabet.

Wecould use 2008-09 to get a sense of how long a full recovery might take, but asfactors of production are intact, it could be much quicker. Markets havepunished the most directly impacted (travel, oil and cyclicals) and in doing sohave further stretched the much highlighted gap between “growth and defensives”(“certainty”) and everything else.

Tosurvive this period, balance sheets are important and equity raisings willdilute holders of some stocks. There is buying to be done; ours has focusedon travel, semiconductors, autos, industrials, biotechnology and highquality financials.

Longerterm we will have to pay for the government stimuli and expect further spendingto build confidence, after the biggest economic collapse in history. This couldbe targeted for example at encouraging the build-out of 5G networks or inEurope, this might be around electric vehicles and renewable energy.

Sofar, the recovery off the market lows is consistent with historical bearmarket rallies. Our base case is that there will be waxing and waning insentiment which could cause us to retest the lows (e.g. if there is a pick-upin infections) and what will be critical for us is to determine when totransition to a more fully invested position by relaxing the short positions.This is likely to be done on market moves downwards from here.

Wecan see potentially good outcomes from medical advances that exceed market expectations.Our edge here comes from having virologist, Dr Bianca Ogden in the investmentteam.

Countriesacross the world are at different stages in terms of the criticality ofthe situation, with the US at the current epicentre. Australia appearsto have been quite lucky on a relative basis, with the “tyranny of distance”acting as a natural advantage here. Our regional portfolio managers are closelywatching the impact of the situation on their coverage areas. We think Chinawill set the example for exiting lockdown and hence our experience here is anedge we hope to capitilise on.

DrJoseph Lai, who runs the Platinum 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 parceldelivery volume, property sales for developers and construction activities.Most shopping malls and restaurants have re-opened and customers have startedto return. Although dining-in is still lacklustre, take-out food has recovered.In India, (with a net invested position of 2% in the Platinum Asia Fund as at 8April), the lockdown started on 24 March and was initially planned for threeweeks (to 14 April). Discussions on how and when a restart can happen areongoing.

OurPlatinum Japan Fund portfolio manager Scott Gilchrist observes thatJapan’s stable social structure and proven historic ability to reinvent itselfshould be a relative benefit in this unsettling environment. With currentvaluations and sentiment towards the country, the medium-term prospects for theJapanese stock market are relatively attractive.

Theportfolio manager for our Platinum European Fund, Nik Dvornak, thinksthat we are seeing infections peak and despite the human tragedy we haveobserved, countries are beginning to plan and some are starting, their returnto normalcy. Government balance sheets are in good shape, which coupled withconscientious social policy provides the ability to soften the blow forenterprises and workers alike.

Toconclude, this situation will be resolved in time and we will ultimately see arecovery. The key decision for Platinum at a global level will be when torelease the handbrake off the short book. Some of the regional and sectorportfolios are more fully invested than others based on the specific dynamicsof their universe.

Belowwe publish the most recent portfolio exposures as at the close of business onWednesday, 8 April.

	Fund	Long %	Short %	Net %	AUD exposure %
1	International	87	(23)	64	10
2	Unhedged	90	n/a	90	0
3	Asia	87	(3)	84	10
4	Europe	96	(11)	85	19
5	Japan	87	(25)	62	0
6	Int’l Brands	101	(21)	80	5
7	Int’l Health Care	92	(5)	87	11
8	Int’l Technology	87	(2)	85	7
9	Global	88	n/a	88	10

www.platinum.com.au/Insights-Tools/The-Journal/Market-Update-9-April-2020