Despite fears that reporting season would be the real test of the market’s recovery from its March lows, it’s now clear that many companies are well placed to survive the 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 & behavioural implications of the pandemic,” said Tribeca portfolio manager Jun Bei Liu.
“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.”
With earnings expectations low for FY20, many companies “outperformed meaningfully” – but travel companies performed particularly strongly in the face of a softer and more prolonged recovery.
“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,” Ms Liu said, noting that Sydney Airport and Ramsay Health Care were some of Tribeca’s favourites.
“Investors are paying very little at this point for earnings, and we are comfortable that once the world returns to normal – and it will – these businesses will experience a V-shaped recovery regardless of the economic cycle. In fact, lower interest rates around the world will further underpin their traditional premium to the market.”
The reporting season was also a boon to the tech sector, with most companies “delivering to high expectations” in a shift Tribeca sees as a “critical turning point in technological adaptation”.
“The COVID-induced lockdown has pulled forward this inevitable structural shift, with many innovators reporting a doubling of revenue and market share,” Ms Liu said.
“Rapid growth in this sector means it is now a significant part of the index.”
Tribeca also sees the start of a strong comeback for retailers aided by stimulus and a lift in consumer confidence, with saved overseas travel dollars now being spent on housing renovation and discretionary items.
“While the path forward is still unclear, one thing for certain is that recovery is coming,” Ms Liu said.
“When it does, we are looking at multiple years of earnings growth for many corporates that will underpin our equity market.”
