Andrew co-founded Platinum in 1994 as the Deputy Chief Investment Officer, having worked alongside Kerr for several years at Bankers Trust and perfecting the craft of.. More
With the coronavirus concerns increasing, this update provides further context for Platinum’s International and Asia equity portfolios1.
Our previous coronavirus update on 29 January 2020 noted we had adopted a cautious stance by adjusting the positioning within these portfolios1.
With the re-emergence of concerns with cases in Korea and Italy, we have acted swiftly to implement risk reduction across our International and Asian equity portfolios1. The flagship Platinum International Fund (Fund) was 71% net exposed to markets at Monday’s close (24 February) and we are continuing to trim winners and add protection as appropriate. However, we do expect strong reactions to lead to buying opportunities. The Platinum Asia Fund was 73% net exposed to markets at Monday’s close.
It should be stressed that against the 25-year history of the Fund (average net exposure of 68%), this could best be described as on the cautious side of neutral, with room to move in either direction. Indeed, the lessons of the 2015-16 and 2018 Chinese slowdowns had been that economically, “if China sneezes, the rest of the world catches a cold”. This metaphor may be coming back to haunt us!
To keep things in perspective, substantial progress is being made in finding a vaccine / cure (some companies we own are involved here), but the data on cases and mortality is challenged by the bottleneck in testing. One of the big challenges is around medical infrastructure in respect of the ability to cope with large numbers of patients.
With an increasing number of cases globally, the key focus now is that the Chinese template of containment led to a considerable drop-off in economic activity. As governments around the world scramble to act in the interests of their increasingly nervous populations, this is an inevitable consequence of the outbreak.
Economic consequences are the market’s focus and the reaction over the last few days has been sharp. The big impact comes through a cessation of economic activity as people and goods stop moving. We saw concerns in this regard last year with the trade war which was targeted, while this is more broad.
The extreme valuations in particular growth companies e.g. software and payments, and defensives were already causing us much concern. We would not be surprised to see further heat come out of hotter areas of the market which have been displaying behaviour consistent with late-stage bull markets.
The performance of Bernie Sanders in the Democratic primaries suggests an extremely partisan election campaign is looming. This could add to market uncertainty after a period of complacency.
Managing the net exposure in portfolios1 is likely to remain very dynamic as these factors play out.
1 Platinum International Fund, Platinum Asia Fund, Platinum Global Fund, Platinum Capital Limited, Platinum Asia Investments Limited
DISCLAIMER: This information has been prepared by Platinum Investment Management Limited ABN 25 063 565 006 AFSL 221935, trading as Platinum Asset Management ("Platinum"). It is general information only and has not been prepared taking into account any particular investor’s investment objectives, financial situation or needs, and should not be used as the basis for making an investment decision. You should obtain professional advice prior to making any investment decision. The market 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 or any other company in the Platinum Group®, including any of their directors, officers or employees, for any loss or damage arising as a result of any reliance on this information.