An interesting observation or two today from Charlie Robertson, Chief Economist at Renaissance Capital. The first is based around the first chart below, which puts existing CoVid 19 deaths within a broader context for mortality data.
According to Robertson, “If we compare corona virus fatalities to what a country normally experiences, most countries have experienced less than a week’s worth of normal deaths (2% of a normal year – as the chart above) from the corona virus. All countries except Belgium (which includes suspected cases) have experienced less than a month’s worth of normal deaths. None of us in the markets would normally notice this sort of variation in a country’s deaths. Meanwhile an economic catastrophe has hit the world economy – wiped out six months of education for many of the children most in need of an education, created tens of millions of unemployed in the US alone, and obliterated the savings of small businesses around the world which will undermine investment for years. “
This level of deaths could always increase though, especially in the US where the virus seems to be spiking in some states, despite earlier lockdowns. But there’s a growing number of data points which suggests that deaths might not carry on exponentially increasing, possibly killing millions of Americans. Some will argue that a full lock down is the only way of slowing down those deaths. But there’s also some other narratives which suggest that the virus might struggle to crash over ‘natural’ barriers such as inherited immunity or other unknown factors. Which brings us to the second chart below, also from Robertson at renaissance. It shows the rapid decline in deaths in Sweden, which avoided a hard lockdown, and Armenia, which abandoned its lockdown on 5 May . Sweden has recorded the equivalent of three weeks of extra deaths (6% of a normal year). Armenia has recorded a week’s worth of extra deaths. As Robertson reminds us “we’re still talking about weeks worth of deaths, not months, and this is after five months of virus spread.”
As important as the deaths, is the decline in active cases in Sweden and Armenia, a flattening out in Brazil and big falls in Belarus (if you trust their data ahead of the 9 August presidential election). It’s not clear why this is happening.
Value struggling in Asia
I’ve been invested in an Asian fund from Samarang for a few years now. It’s called the Asian Prosperity Fund and is run by an experienced value manager, Greg Fisher. The fund boasts a great track record but has been struggling in recent months. Like many value focused managers around the world, Greg finds his style of investing hard going in a new investing normal.
According to Fisher “I cannot remember a time when the investment results between ‘growth’ and ‘value’ style investing have ever been more extreme, even back in 1999. The COVID-19 crisis has essentially exacerbated a divide growing stronger over the last 5 years, with the market prepared to pay almost anything for say, a cloud computing business, perceived to be untouched and perhaps even benefiting from present circumstances, and on the other hand, almost nothing at all, for still profitable industrial manufacturers with cast iron balance sheets and records of steadily increasing dividends. Obviously, I am not alone in making these observations, but that is not what is presently driving stock prices. One of my frustrations is that it has sometimes been possible to find small companies in fashionable sectors which meet both criteria, that is, say, for example, software companies that trade at still reasonable valuations with good prospects of rising revenues ahead, profitable and debt free. Unfortunately, they have in general been limited to just one market, Japan, and almost always, very small in size.”
Greg reckons “we are presently in an extreme situation where a narrower and narrower set of investments attracts global capital, driving prices higher and higher. We will not chase that”.
This is I think very revealing. Of course value stocks have been struggling but for an experienced manager like Fisher to be making these comments reminds us how difficult some styles of investing have become in these topsy turvy, winner takes all, mega large cap/technology markets.