Robert Swift, manager of the TAMIM Global High Conviction strategies, reviews the month that was February from a global perspective and how it impacted his decision making when it comes to his portfolios.
February was dominated by fears associated with the global spread of the coronavirus COVID-19. February started in relatively quiet fashion as we observed a generally positive Q3 results season in Japan, however, towards the end of the month corporate news was overwhelmed by a rising scale of panic in global markets associated with COVID-19.
The Australian dollar continued to weaken during February bring the World Value Weighted index return in AUD terms to -c.6% with the currency ending the month trading at just above US 65 cents.
At the time of writing, there are 86,032 confirmed cases of COVID-19 in 64 countries and territories, of which 92.1% of cases (and 96.4% of the 2,942 deaths) are in China, the country of origin. It may therefore come as a surprise to hear that the market in China rose by 1.96% in February. Hong Kong fell by just 0.80%. There were significant falls in Japan, the USA and Europe, which all fell around 9%.
A key factor in the relative stability of the equity market in China appears to be the news that since 18th February the number of patients recovering from COVID-19 is exceeding the number of new cases. We are not downplaying the tragic events associated with COVID-19, however, in strictly market terms this is a familiar response to an unexpected event with an uncertain impact and time frame as the number of new cases COVID-19 rises in exponential fashion. That initial panic and negative response moves to a period of recovery when the degree of impact is better understood and the level of uncertainty declines. The pattern of market recovery in China is therefore “normal” in the context of the apparent reduction in the number of new cases and the volume of recovering patients. That pattern of recovery can be expected to follow in other countries around the world as the response to COVID-19 plays out in valuations of equity markets.
We are maintaining our view that China’s better communicated and proactive response to COVID-19 in 2020 versus SARS in 2003 may have exaggerated the global stock market volatility, however, that isn’t a reason to abandon risk assets. We provide in bullet point format, some of our thoughts on “where to” from here.
Investors selling into this type of volatile environment typically “forget” to re-enter the markets as fear generates too many confusing signals. In terms of long-term investment outcomes, it is always better to be a net buyer in this type of situation. We expect to look back at the early months of 2020 as a period of market “noise” and not the key component of our investment returns.
We made one major change in the strategy in February, selling Amada Tools and re-investing in NTT Docomo. This is a Japanese mobile telecommunications company on a P/E of 16x and a yield of 4%. The most interesting part of the business is the Smart Life business segment which handles the finance or payment services, shopping services, and life-related services. It also contains video and music distribution, electronic book-store service, and online shopping service. We anticipate this division boosting the overall growth rate of a mature but financially stable company; one which is also buying back its own shares.
The High Conviction IMA strategy holds 30 stocks and remains value biased with risk taken stock positions with an underweight in Europe and to the Euro; an underweight in global banks and overweight positions in Japan and Asia, particularly IT companies and industrial companies trading on significant discounts to their USA equivalent.
Markets & Commentary
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TAMIM Asset Management provides general information to help you understand our investment approach. Any financial information we provide is not advice, has not considered your personal circumstances and may not be suitable for you.