In this article for the Australian Financial Review, Chris Demasi answers seven questions by Vesna Poljak on topics ranging from a stock he is excited, impacts from the US election and about to where you can find a good pasta in Sydney!
Did you adjust your position in SAP after the third-quarter result? What did you make of the market reaction?
SAP was a small to medium-sized position in our funds coming into the result and we haven’t made any changes to that. As the market leader in ERP software, and one of only two real options for large enterprises, SAP is benefiting from a multidecade digital transformation of enterprises worldwide.
The most important news from the recent results was that SAP is doubling down on its cloud ERP offering and moving customers to the cloud quicker.
This is going to require some investment and forgoing some revenue in the near term, in return for even greater and more recurring revenues and higher profitability after that.
The market is overly focused on the short-term earnings moderation, instead of the long-run earnings potential, and the share price traded down.
Is the US election result a good outcome for your portfolio, and more specifically, Facebook?
We have a contested result today, but assuming Biden has won the presidential election, and that the Senate and House remain split, I think the outcome of the 2020 US election is favourable for equities in general.
As far as Facebook is concerned I think this is incrementally positive, because any investigations are likely to be slower moving, with less chance of tail risks playing out.
More importantly, Facebook has an enormous runway for growth ahead, as the COVID-19 pandemic has shifted more businesses to online advertising, and as their e-commerce (Facebook Shops), short videos (Reels), messaging and virtual reality investments are increasingly monetised in the future.
Tell us a stock you’re quietly excited about, even though it may only be a small position, that we’ve (probably) never heard of.
You’ve probably heard of Alibaba because it operates that largest e-commerce platform in China, with the Taobao and Tmall marketplaces. But you might not have heard of two of their other businesses, Alicloud and Lazada.
Alicloud is China’s largest cloud computing platform with more than 40 per cent market share and growing 60 per cent per annum.
Lazada is the largest south-east Asian online retail marketplace, with 100 million users across Indonesia, Singapore, Thailand, Malaysia, Vietnam and the Philippines.
As this region moves online and incomes rise, e-commerce is expected to quadruple in the next five years. Alicloud and Lazada are hidden gems that could be worth tens or hundreds of billions of dollars in the future but are not reflected in Alibaba’s share price today.
Do you agree with Bill Ackman that Berkshire Hathaway wasn’t as opportunistic as one might have expected during the drawdown?
I think it’s easy to make that conclusion in hindsight, knowing what we know now about the performance of equity markets. However, it’s important to remember that the drawdown in the market earlier this year came as we were facing a public health crisis, unprecedented economic shutdowns and financial markets that became dislocated.
If it were not for the fiscal support of governments, and liquidity injections by central banks worldwide, it was possible if not probable that markets would have legged down another 30 per cent or more. So there was certainly a case to be made for preserving capital from substantial further erosion and positioning for future opportunities.
Have you come back to any old names you knew well, and had moved on from, but 2020 meant they were too cheap to resist?
We have revisited the dominant alternative asset managers and re-established positions here. These include names like Blackstone, KKR and Carlyle that are known as private equity managers but have extended their businesses to include real estate, infrastructure and credit.
The funds that they manage for clients came through the COVID-19 pandemic more resilient than expected. At the same time, low interest rates are boosting asset valuations, providing low-cost funding for new investments, and making them more attractive to big pension funds, sovereign wealth funds and insurance companies around the world who are looking for higher returns than they can find in a typical bond portfolio.
What’s a TV show, new or old, that’s caught your eye lately worth streaming?
I’m much more likely to be watching sports than TV shows, and even if I do watch TV shows I tend to play catch-up by watching the classics from years ago. I’ve been doing this with The Sopranos from HBO lately, it’s available on Binge. This show was a pioneer for a golden age of TV that has come over the last two decades.
Favourite spot for a good value quick bite in Sydney?
I love Osteria Riva in Bondi Junction right now. Home-made pasta well-priced and signature steaks from the value Angus right up to the Wagyu (less a value play but definitely worthwhile to treat yourself). The Italian wine list is where the real value lies though – you’ll need more than a quick stop to appreciate that.
Vesna Poljak is the Markets editor. She covers equities, bonds, currencies and the economy with a special interest in the investment industry, hedge funds and accounting. She is based in the Sydney newsroom.