Investors have failed to price in the significantly improved prospects for a COVID-19 vaccine, leaving a whole cohort of the sharemarket still materially discounted, according to L1 Capital co-founder Mark Landau.
The Australian benchmark index recorded its fifth consecutive monthly gain at the close of trade on Monday, and Wednesday’s 1.8 per cent gain brings the S&P/ASX 200 Index 15 per cent below its February 20 high.
And while the All Technology Index is now more than 23 per cent above where it made its debut at the end of February, shares in sectors such as travel and energy remain well below their pre-pandemic prices.
“We think that a lot of the COVID hit stocks are still not reflecting any improvement in the likelihood of a vaccine and we think that that represents by far the best risk-reward that we can see in the market at the moment,” Mr Landau told the Future Generation investor update on Wednesday.
“So whether it’s travel stocks or casinos or shopping centres or oil stocks –they all are clear COVID losers,” he said. “And many of them are trading 50 per cent lower than where they were trading back in January, so the nice thing about maths is that means 100 per cent upside.”
Travel and energy remain two of the biggest hit sectors. Concerns about the market for crude oil and border closures because of the continuing threat from the virus are maintaining the pressure on security prices.
From the ASX 200 index record high in February to yesterday’s close, Flight Centre shares have fallen 69 per cent to $12.43, Qantas shares 41 per cent to $3.95, and Woodside Petroleum 32 per cent to $5.48.
The fund manager has high confidence in the prospect for a vaccine, with the number of advanced-stage candidates representing a high number of “shots on goal”.
“We’ve been consistently saying that we think the likelihood of a safe and effective vaccine is much better than I guess the consensus opinion,” Mr Landau said.
“We’ve done more than 100 meetings specifically on COVID and we’ve done more than 30 [interviews] with the people who matter globally in terms of vaccines… for all of the major Western and Chinese groups: so Pfizer and Moderna and AstraZeneca, as well as companies like Sinovac and Sinopharm and CanSino.
“You’ve never had a time in history where you’ve had so many global resources, all united and determined to get a cure as fast as possible,” he said.
The investor is less optimistic about how shares in the iron ore exporters will perform moving forward.
“Iron ore is a sector that we’re pretty wary of at the moment — we think it looks very toppy, and at risk of a bit of a retracement in iron ore prices as supply comes back.”
Constrained supply from Brazil and strong demand in China have pushed prices for the steel-making ingredient sharply higher, adding to the ranks of Australia’s billionaires, and claiming a record high for Fortescue Metals Group.
