Hamish Douglass more optimistic, but still cautious on pandemic risks

Hamish Douglass is “more comfortable” about the outlook than he was in July and has been quietly wading into the market.

Hamish Douglass is “more comfortable” about the outlook than he was in July and has been quietly wading into the market. Picture: Britta Campion / The Australian

One of Australia’s best-known fund managers sees less risk of “extreme downside scenarios” around COVID-19 but warns of potential volatility after the US election in November.

Hamish Douglass is “more comfortable” about the outlook than he was in July and has been quietly wading into the market and cutting the holdings of cash in his $100bn Magellan Financial fund.

Amid concern that central banks and government’s couldn’t stop financial contagion if the coronavirus worsened and effective treatments weren’t found, the co-founder and chief investment officer of Magellan Financial had boosted the cash reserve of the flagship Magellan Global Fund to 15 per cent by June 30 after a more than 40 per cent bounce in shares since March. At the time he warned that global sharemarkets could fall 50 per cent just as easily as they could rise 20 per cent.

But in September he put this cash to work when markets were falling, including a dip of almost 8 per cent in the MSCI Developed Markets index.

“We are still early in the second waves, we don’t yet have phase three trial results, we could have some failures of these vaccines and we’re starting to see some evidence of reinfection,” Mr Douglass said.

“But we have been selectively reducing our cash … we have become more comfortable about the extreme downside scenarios, but we have been doing it [adjusting share holdings] in areas we think are less exposed to ongoing downside risk from the pandemic.

“So a little bit optimistic, but still cautious is how we see it at the moment.”

Magellan had about $US102bn of funds under management as of September.

Mr Douglass’s comments came as Australia’s benchmark S&P/ASX 200 on Tuesday hit a seven-month high of 6214.7 points, before ending at a seven-week closing high of 6195.7, up 1 per cent.

The bourse rose 7.1 per cent in a seven-day winning streak, its best seven-day run since July 2009 — near the start of an almost seven-year bull market after the global ­financial crisis.

The banks index surged 11.4 per cent in the same period as Australia’s world-leading fiscal stimulus outlined in the federal budget lessened economic risks for the ­nation’s biggest lenders.

The US S&P 500 rose almost 6 per cent in that time amid growing hopes of a clean sweep by Democrats in the November 3 presidential election leading to massive US fiscal stimulus.

Even as hopes of imminent US fiscal stimulus faded, a renewed surge in tech giants drove the S&P 500 up 1.6 per cent to a six-week high of 3534.2 points, just 1.5 per cent off a record high.

But US stock index futures ­wavered before the start of US quarterly earnings this week.

Emerging markets had been a major concern for Mr Douglass, given his view that devastating economic impacts of COVID-19 could cause currency crises, precipitating global risk aversion.

But emerging markets now ­appear more resilient as those countries have mostly managed to keep their economies open despite the virus running rampant in many cases.

“Of course the human tragedy could be enormous in those markets, but the economic downside is probably not as great as we were fearing,” he said.

“We are seeing substantial economic support here in terms of public expenditure and what the central banks have been doing, as we have also seen in Australia.”

“In terms of the range of 20-50 per cent down, the downside scenario looks less than it was,” Mr Douglass told more than 6000 investors in a webinar on Tuesday.

As for the US election, Mr Douglass said “anything can happen”, as in 2016, when Donald Trump beat rival Hillary Clinton against all odds.

An “ugly, contested election” where the result wasn’t known for weeks, was something “we should all prepare ourselves” for but the chaos that might follow in the US would be “relatively shortlived”.