Picking durable stocks has become the new game for investors as they seek to navigate the pandemic and weather the storm it has brought, according to Premium China Funds Management’s director, Jonathan Wu.
The close examination of stocks underpinning Premium China’s marquee Premium Asia Fund confirmed the value of focusing on companies who have “both the settings and track record necessary to see them weather something like the current pandemic”.
Wu used the example of the Premium Asia Fund’s exposure to Galaxy Entertainment Group which he said might, at first blush, appear counterintuitive given the impact of lockdowns on travel and hospitality across the world.
“Galaxy is one of the world’s largest resort, entertainment and hospitality groups with which has developed and operates a portfolio of integrated resort, retail, dining, hotel and gaming facilities in Macau,” he said.
“But the real value is Galaxy is the durability of its balance sheet which is arguably strong enough to see it through it through any prolonged crisis.”
The company had a cash position of $6,645 million, representing around 25% of its market capitalisation which was more than enough to see it carry on for more than five years without needing to resort to cost-cutting or other measures.
“So, in that context, survivability is all that really matters,” Wu said.
According to Wu, durability to the Premium Asia Fund and the Premium China Fund which, overall, had a net cash to equity ratio of 15.1% and 11.2% respectively. For comparison the net cash to equity ratio of MSCI AC World Average is -51.5%.