Summary

Investing in a Pandemic

Eric described how they look for inferences and how such work leads them to long and short stock conviction lists based on their inferential media screening. The pandemic accelerated many secular trends such as the falling footfall in mid-level malls, mid-level brick and mortar retail, advertising agencies and cinemas - a group of sectors they describe as ‘Dancing on graves’. Take Omnicom, Publicis, Regal, AMC who’s revenue has fallen dramatically in recent months. He then discussed the ‘Newly recognised necessities’ in which companies in certain sectors which had momentum going in to the pandemic have become recognised as essential, such as in telemedicine, cloud computing, e-commerce logistics, warehousing. Inferential Focus conducted a presentation in February titled Retail 2020 and Beyond and have been writing on the sector since 2012 when they realised that the retail industry would be rethought and restructured. They were quick to see that the digital economy was beginning to undermine pricing for traditional retailers with price comparison tools and increasing numbers of direct to consumer companies offering low prices. They added Target to their retail portfolio in 2018 when most viewed it as a typical old school, big box store, but the company was actually beginning to align themselves with the desires of the new digitally trained consumer and the retail restructuring environment. Target acquired Shipt - a same-day delivery platform; they upgraded instore technology; they implemented AR technology from Perfect Corp. so users could virtually try cosmetics; they had instituted better buy online and pick-up in store processes; and finally they ramped up private label offerings aligning with customers desire for resourcefulness, novelty and product differentiation. Target was aligning with the new retail paradigm shift and their share price has doubled. The ‘Battle for consumer time’ theme / portfolio which has been turbocharged by the pandemic and can be shown through the video gaming sector and focusing in particular on changing communication platforms, where content is being streamed and consumed. Discord is a platform used by gamers which has seen monthly users grow by 67% between January and August. Through looking at the Entertainment publication, Variety, which did a study ranking the influence of celebrities to the teenage cohort, 8 of the top 10 slots were not filled by celebrities from movies, TV or Music but from YouTube creators and the top 3 were all creators who’s content focused on video games; this is an example of an anomaly highlighted by Inferential Focus that people wouldn’t expect. Roku entered the portfolio in 2017 when it was listed given it’s a streaming company that is agnostic to content and has been partnering up with television hardware makers to ramp up streaming services and move deeper into the advertising supported model. Having had Viacom as a short / sell for a long time which has worked out well, for the inferential observer you would have seen that the company has moved into the streaming area so should start to see big benefits and is now a long in their portfolio. On the New Economy theme Eric discussed cloud companies such as SailPoint, robotics, labour platforms such as Fiverr and sustainability solutions. You need to recognise the change in the way companies are operating due to the cultural and social shifts to really pick the winners and losers.

China coming out of the Pandemic

Charles on China which he has tracked for many years says that today more than ever they are determined to be the force they were in the mid-1800s when they were the largest economy in the world. During the financial crisis they didn’t go into negative growth seen by rest of the world, so didn’t need to confront a recession, meanwhile they used USD600bn to USD700bn to build 6,000 miles of roads and hundreds of airports and became the largest producer of high speed trains. Charles sees a very strong recovery coming out of China particularly given the success they had in containing the virus through full lockdowns. They announced a new development program at the Communist party meeting in May where President Xi said that they were going to combine their industrial capabilities and lean on their huge domestic market whilst ramping up new infrastructure including 5G, AI, big data use, ultra-high voltage grids, charging poles for EVs, blockchain, FinTech etc. Their development in Tech will bring down their manufacturing costs dramatically. The Bank of China has announced that they will be setting up a national electronic payment system; they will be the first central bank to do this. This will be a direct alternative to Alipay and WeChat and explains the recent souring relationship between Jack Ma and the authorities and the postponement of The Ant IPO. Interesting that 20% to 30% of trade today can be carried out in Yuan; 8 years ago this would have all had to have been done through the dollar. They no longer need to clear transactions through Swift which keeps their transactions anonymous from the West. China has its debt problems under control having reigned in peer to peer lending so this won’t be an issue in the future despite what media publications and researchers might report. China and Taiwan are at a critical juncture. China needs Taiwan for its semiconductor equipment and expertise and there could be conflict. China is often portrayed negatively in the West, Charles disagrees and by way of examples highlights their huge positive investment in Africa. They take in 75,000 students a year from the continent to learn Mandarin who go back and run the African operations of these Chinese companies. They have developed infrastructure and services all over Africa and are also the largest investors in Latin America. Thai banks have embraced Alibaba for payments despite the pressure it puts on their local banks. The belt and road initiative is well and truly underway despite what some might say.

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