Key take-outs from the call:
- We’re well through the first stage of the bear market where the biggest focus was focusing on the risks in the portfolio. Now we’re looking at the medium to longer term implications on industries and companies on the ‘other side’, as there will be clear winners and losers. A focus on balance sheets and management teams is essential as a bear market will brutally expose any cracks.
- It’s critical to be thinking about how industry structures will change as a result and how various economies will placed to weather the global demand shock.
- Macro- economic volatility is here to stay for some time. Some countries will be less well placed (high debt) to be able to maintain prolonged lockdowns and provide the economic stimulus to weather the storm.
- Monetary and fiscal response is likely to be inflationary over the medium term (2-3 years) which will have implications on real asset prices and commodity prices.
- The pandemic has fast forwarded the trend towards deglobalisation which will have an impact on supply chains globally and may advantage some EM countries - particularly those with the larger domestic economies where governments can stimulate demand.
- While China has been resilient through this - a note of caution - the demand shock from the developed world will have a major impact on their ability to get back to full utilisation of factories and supply.
- It’s critical to remain disciplined to our process, but with a wider range of outcomes across the market, it’s also important to remain flexible in how you manage cash, time positions and allocate capital
- The market sell off was indiscriminate at first which provided us with some good opportunities to top up on quality stocks that previously were too expensive. We’re aiming to enhance the intrinsic value of the portfolio by more of the structural winners, by buying into better businesses, and buying into those stocks that were previously too expensive from a valuation perspective that have been on our watch for some time.
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