Market Update - 25 March 2020

The economic impact of removing labour as an input is real, however, it is also likely to be transient at a system level. There will be individuals and companies that suffer bankruptcy, but post lockdown, a semblance of normality will return in time as China is starting to show.

Many governments are providing financial packages to redistribute the impact and 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 and Singapore appear to have done well to keep on top of this from the start.

Central banks are providing additional liquidity, yet we are still experiencing one of the most extreme moves downward in global market history. When we look back 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 is closely tracking the evolution of the science and medical response and is encouraged with the progress scientists are making in figuring out the structure of the viral protease – the first step in finding an inhibitor to directly target the viral life cycle.

On the medical front, there is not much new to report. Gilead has been inundated with requests for compassionate use of remdesivir and have had to change to ‘expanded access’. This means patients should be enrolled in the clinical trial. This should allow for proper clinical development, speed-up clinical trial read out, reimbursement and in the end, approval. Meanwhile, debate continues about the use of hydroxychloroquine.

On the testing front, there have been emergency approvals of faster point of care tests late last week while many companies are working on serological tests.

In the broader corporate world, we are seeing a "war effort" with companies switching production facilities to increase supply of for example, sanitisers (Pernod), ventilators (carmakers) and gowns (H&M).

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

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

In recent days, with the Australian dollar falling below 60c we have started to add some AUD exposure in our flagship portfolio. We have also introduced new positions relating to travel and semiconductors, and have topped up several existing positions^₁.

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

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

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

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.
 

¹Platinum International Fund

Source: Platinum for fund returns and MSCI and S&P for index returns. Fund returns are the returns of C Class units. The returns are net of fees and expenses and assume the reinvestment of distributions. Past performance is not a reliable indicator of future returns. There are inherent limitations in relying on short-term investment performance and short term investment performance should not be relied upon for the purposes of making any investment decisions. For details of our longer-term performance please refer to our website at www.platinum.com.au. The returns of the S&P/ASX 300 have been provided to illustrate the returns of the broader Australian equity market. Our funds do not do not typically invest in Australian equities. 

Disclaimer: 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.