Market Update – 1 April 2020

Andrew Clifford, Platinum CEO, provides an update.

Coronavirus and economic update

The impact of the coronavirus (COVID-19) is now being felt by all of us on a daily basis, with WFH, social distancing, self-isolation and lockdown likely vying for words of the year.

The impact of less interactions is leading to a much slower transmission of the virus, which gives some optimism about the transient nature of the major economic impact – that being a partial withdrawal of labour from the system. We are not yet at the stage of discussing "back to work" globally but if the data trends continue that will start to be where the conversation moves.

What is not known at this stage is how coming out of lockdown works – China will offer us a case study. Our experience in the region, coupled with the input on the other big variable, medical science, from our resident virologist Bianca Ogden, gives us two key focal points to interpret.

In Asia, China is steadily getting back to work and re-opening from lockdown, though export businesses could suffer from the global slump. We are at least, primarily focused on domestic businesses. It is also clear that while NE Asia (China, Korea, Japan, Taiwan) and Singapore have managed this well, there is increasing evidence that S&SE Asia (India, Pakistan, Indonesia, Philippines and Malaysia) are areas of concern.

Bianca is encouraged that diagnostic test capacity is continuing to expand with additional tests receiving emergency approval in the US, which is rapidly becoming the epicentre of this pandemic. More papers are emerging highlighting the learnings from Italy, with the clear point being made that ICU capacity both needs to increase and to be managed countrywide.

In terms of potential therapeutics, Gilead Sciences CEO Dan O’Day wrote an open letter detailing the company’s efforts and confirming clinical data will be available in April. The medtech industry is coming together to increase ventilator production and overall both drug developers and medtech companies alike continue to rise to the challenge.

On the vaccine front, Sanofi expanded its efforts to tackle SARS CoV2 further. Besides developing a recombinant DNA vaccine as well as testing its Il6 antibody to treat COVID disease, the company has also expanded its alliance with mRNA biotech Translate Bio. Johnson & Johnson announced that its vaccine candidate will start clinical trials in September and it is already expanding manufacturing capacity globally stating it will produce one billion vaccines worldwide.

Debate regarding serological testing and planning for life after COVID-19 is starting to gain momentum. Germany, for example, is considering immunity certificates once tests show an individual has recovered and is fit to return to work.

Market and portfolio update

The last week has seen some markets rebound quite hard from oversold levels, but we would caution that this is consistent with bear market behaviour and it is unlikely that markets race higher from here.

With this in mind, we continue to have a cautious stance, focusing first on protecting capital and second on finding new opportunity. We expect there to be a time to become more aggressive and can reduce shorts quickly as needed.

A sell-off of this magnitude throws up opportunity and the investment team is working hard on a number of ideas.

We have added a leading travel technology company that we expect to enhance its dominant position when restrictions are lifted later in the year. We have introduced an additional position in the semiconductor space, a highly skilled equipment maker listed in the US.

Our exposure to energy, materials and industrials were hit with the double-whammy of the oil shock in addition to the virus. The key drivers of these positions relate to an increase in offshore capex and the adoption of electric vehicles, driven by emissions regulations in Europe and China. It is worth reiterating the case for offshore oil capex revolves around a medium term supply-demand imbalance that cannot (and at these new low prices, will not) be met by US shale. After a multi-year capex recession, we need to re-invest in exploration. This has been postponed but not cancelled as a result of the current setback.

Our shorts remain a combination of a broad mix of indices around the world and a collection of individual stocks where we believe the fundamentals are challenged or where we think they have, as yet, defied gravity.

At the close of business on Tuesday, 31 March 2020, our invested position across the Platinum Trust Fund’s and Platinum Global Fund was as follows:

We will continue to keep you informed with the monthly factsheets and quarterly report to be published in April.
 

DISCLAIMER: This article has been prepared by Platinum Investment Management Limited ABN 25 063 565 006, AFSL 221935, trading as Platinum Asset Management (“Platinum”). This information is general in nature and does not take into account your specific needs or circumstances. You should consider your own financial position, objectives and requirements and seek professional financial advice before making any financial decisions. You should also read the relevant product disclosure statement before making any decision to acquire units in any of our funds, copies are available at www.platinum.com.au. The 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 for any loss or damage as a result of any reliance on this information.