One fund’s view on the way out of COVID-19 lockdowns and the stocks its been buying
Link copied to
While Australia’s COVID-19 cases are continuing to fall, L1 Capital warns the economy has not yet faced the worst of the crisis.
The lockdown measures may have prevented the pandemic from getting worse in Australia, but that does not mean the situation is close to being over. While governments will gradually re-open their economies, they will need to take cautious, staged approaches for months.
“Our base case for Australia is that the interim measures will last for longer than people expect (until H2 2021 when we may have vaccines available),” L1 Capital said.
“But it is also likely that we will see divergent paths across the world as some nations decide that the economic pain is too much to bear and pursue herd immunity instead.”
While a couple of vaccines, particularly Gilead’s Remdesivir drug, have shown promising early results, L1 warned it was too early to tell, with initial data only showing 2 per cent of the trial’s patients.
L1 believes China’s experience has shown that recovery is possible but will be slow. It predicts infrastructure and supermarkets will benefit thanks to stimulus and hoarding respectively.
It tips domestic travel to resume in the September quarter but international travel won’t resume “for a much longer period”. Despite the easing of restrictions on elective surgery, L1 still thinks non-COVID activities will be down from prior to the crisis.
Nevertheless, L1 thinks that Australia has a more positive outlook than America. The US is the world’s hotspot of COVID-19 cases and fatalities. In recent days Washington and the states have been divided over co-ordinating the response and when economies should reopen.
And the US federal election will add more uncertainty to the economy and stockmarkets. But L1 noted that “the Trump administration and the Fed have shown they will do ‘whatever it takes’ to try and provide a backstop for US stocks”.
Last month, when markets were in their worst state since the GFC, L1 engaged in a buying spree of global equities.
L1 was particularly bullish on Perenti saying that despite the company rallying 60 per cent since the end of March, there was still upside. It noted Perenti had high client satisfaction levels and a strong order book.
Among global equities, it named a handful of stocks that would benefit from a post-COVID 19 world. One was American payments giant Visa (NYSE:V), with L1 saying it would benefit as the world shifted even further to contactless payments.
Another was broadband provider Charter (NDQ:CHTR), which already supplied 40 per cent of US households and would benefit as working from home rose.