Market Update - February 2019

This article captures the essence of recent conversations Andrew Clifford, Platinum’s CIO has been having with investors about the Platinum International Fund’s positioning.

2018 emphasised China’s importance.  No longer can investors slavishly follow the Fed, or solely take cues from the US.  2015-16 warned of this influence; in 2018, China sneezed - the world caught a cold, despite a strong US economy being stimulated further. China is the largest market for all physical goods (e.g. shoes, handbags, cars, aircraft).  Gyrations, positive or negative, ripple out to China’s suppliers.  Exporting little to China immunises the US in both directions.
 
The triple headwinds were about tightening – Chinese financial reform, US rate rises and trade war induced problems and uncertainty.  2019 has started better with China loosening (big tax cuts and fiscal stimulus), the Fed “patient” and consensus forming that trade disputes are in no-one’s interest.  With huge incentives to find a conclusion, an escalation would be negative.  We have hedged our exposure to Chinese currency to mitigate risk.
 
This sounds like China versus the US but these two dynamic economies provide the most ideas.  For example, we recently added to beaten-up US chipmakers; the low net US exposure reflects extreme valuation dispersion; cheap stocks are attractive and expensive stocks vulnerable; and technology and biotech proliferation inflates US market indices.
 
Markets are shunning cyclicals, regardless of location. Along with Semiconductors, we can point to traditional Auto (electric vehicles are an opportunity for the best), Oil Services (after a multi-year capex hiatus) and that market bellwether, copper, is currently behaving well.
 
Stocks give the best sense of a portfolio’s prospects and in 30 years of running money, it is hard to recall when so many large, leading global companies were on valuations like today.  Entering 2019, the long portion of the Platinum International Fund was on 10x P/E.  While this does not predict the near term (though the Fund is up around 9% since 11 December 2018 lows to 21 February 2019), based on our past experience, it suggests the possibility of solid medium term prospects.

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