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Did investors overreact to the COVID-19 pandemic?
The economic downturn has not hit many sectors of the economy as hard as first predicted, with the reporting season revealing that many sectors will recover quickly, an investment fund has revealed.
Did investors overreact to the COVID-19 pandemic?
The economic downturn has not hit many sectors of the economy as hard as first predicted, with the reporting season revealing that many sectors will recover quickly, an investment fund has revealed.
Tribeca Alpha Plus fund lead portfolio manager Jun Bei Liu believes many businesses are showing resilience despite the COVID-19 pandemic.
“What is now clear is that the immediate impact of COVID (for most sectors) is not as severe as initially feared, but the initial recovery enthusiasm has been muted by concerns of further lockdowns (e.g. Victoria) and the still unknown longer-term economic and behavioural implications of the pandemic,” Ms Bei Liu said.
Ms Bei Lui believes investors are paying very little at this point for earnings, with many likely to experience a V-shaped recovery regardless of the economic cycle.
“The fact the market rallied in August despite net earnings downgrades to FY21 forecasts highlights the extent to which the market is willing to look through near-term weakness.”
“We continue to be on the lookout for businesses that are priced attractively on a ‘normalised earnings’ basis, provided the risk and time of achieving such normalised earnings is appropriately discounted in the price,” Ms Bei Lui explained.
She also explained that investors who have a longer-term horizon could profit from the market’s current reaction to COVID-19.
“Our view has always been that current market conditions offer ample opportunities to buy some premium assets which are trading at a fraction of their intrinsic value. Sydney Airport, Scentre Group and Ramsay Health Care are some of our favourites in playing the reopening theme,” Ms Bei Lui said.
Ms Bei Lui highlighted that the reporting season has revealed retail sales have staged a “phenomenal comeback” despite being one of the hardest hit sectors, as governments continue to stimulate the economy by putting cash into consumers’ pockets.
While cautioning investors about the long-term profitability of some retail businesses, Ms Bei Lui points to a lack of overseas travel also becoming a tailwind for the sector, with housing renovations and discretionary items rising throughout the pandemic.
“In the retail space, rather than the staple names, we prefer the discretionary peers. Like most of our recommendations to investors, a positive top-down view should not be translated into a blanket buy of the whole sector. Fundamental research is the critical factor to generate superior returns. In this vein, Super Retail, which owns Supercheap Auto, BCF, Macpac and Rebel, operates in the sweet spot of this transition year,” Ms Bei Lui concluded.
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