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Hedge fund choices at Sohn 2020 show dangers of Covid Investing

(Bloomberg) – To say investing is tricky during the pandemic would be an understatement. And that has proven to be true for many hedge fund managers since last year’s Sohn Investment Conference in Hong Kong. Among those who made investment calls at the September event, Gabriel Grego of Quintessential Capital Management won after vouching for Japanese company Sun Corp. an Israeli cybersecurity company that goes public via one of the trends of the time: a SPAC. Asia Research & Capital Management’s Alp Ercil benefited from a rally of lower-grade bonds issued by US energy companies that were sold in the rout of March 2020.Read a TOPLive blog on the 2021 event During this time, some bearish bets have failed, as stock markets continue to rise thanks to an unprecedented global economic recovery. George Yang of Anatole Investment Management made a short appeal against the parent company of Zara Inditex SA, only to see the stock fly. Jay Huck of Egerton Capital expected similar declines from Arista Networks Inc., which has benefited from the migration to cloud computing. The coronavirus continues to wreak havoc even as vaccines are rolled out in many markets. Sean Debow of Eurizon Asset Management has touted the rise in consumption in India, only to see the tragic wave of Covid-19 cases disrupt spending. look back at some of the picks from last year. And to put it in context, the S&P 500 Index has climbed 21% since the previous September 9 event Gabriel Grego, Quintessential Capital Management The call: Sun, a Japanese company with a majority stake in the cybersecurity provider Israeli Cellebrite, was a buy thanks to its high cash flow, low leverage, proprietary technology, and investor-activist friendliness. Yes. Sun has gained more than 50% since last year’s conference, in part thanks to Cellebrite’s plan to go public via a special-purpose acquisition vehicle. Grego said he bought at around 1,400 yen a share and that its intrinsic value was around 7,000 yen, more than double the current price. It all depends on how much Cellebrite stock Sun will keep after listing and what the pachinko coin maker does with the manna. But he says Sun could herald a softer brand of shareholder activism in Japan. “It might be less wise to go down a high-conflict path like you do, say, in the US” Alp Ercil, Asia Research & Capital Management%, is expected to shrink to pre-Covid levels, said the founder of the distressed Hong Kong-based asset manager. By the time of last year’s conference, the unprecedented central bank stimulus measures had resulted in a significant compression of debt spreads for A-rated US companies after the rout in March. The same had not yet happened for lower rated papers. Yes. ARCM purchased a basket of this debt maturing beyond 2045, issued by US energy companies Apache Corp., Energy Transfer LP, Hess Corp., MPLX LP and Plains All American Pipeline LP. Their spreads have narrowed from 120 basis points to 170 basis points since last year’s conference, giving the basket a return of around 27%, people familiar with the matter said. ARCM has largely left these positions, the people added. Nancy Yang, CloudAlpha Capital The call: KE Holdings has what it takes to become the dominant player in the housing technology market, Yang said. She estimated that the Chinese real estate platform could be worth $ 136 billion in three years and $ 200 billion in the long term. China’s housing market was becoming increasingly difficult as it went through structural changes, and KE could benefit as intermediaries would play a significant role, she said. Initially. The stock jumped 67% to a high on February 22, but has since returned most of the gains and is up about 10% since last year’s conference. The company’s investment thesis and KE’s competitiveness remain unchanged, CloudAlpha said in a statement. He attributed the recent retreat to “the change in the macroeconomic environment and market risk appetite in recent months”, without giving further details. Seth Fischer, Oasis Management Call: Hazama Ando Corp. the civil engineering company to spend some money to buy back shares and improve its return on equity. Loaded with money, it was “financially ridiculous” but not a value trap, he said. It has a backlog of high-margin infrastructure projects, stable revenues and a good track record. Yes. Hazama Ando announced in November a plan to buy back 9.3% of its shares for 10 billion yen. It was just a little less than the 10% that Oasis had been pushing to buy back in May 2020. The automaker’s shares have gained 20% since last year’s conference.Sean Debow, Eurizon Asset ManagementThe call: Consumers Rural Indians are adding wealth and embracing big city consumption trends like natural health therapies have been a driving force for Debow, Managing Director of Eurizon Asset Management in Asia. It has touted six titles, including Hindustan Unilever Ltd., Britannia Industries Ltd. and Dabur India Ltd., betting they would benefit from the country’s rising middle class. Partially. Some consumer actions have shown resilience even as the spread of Covid-19 across India has wreaked havoc on consumer habits. Hindustan Unilever and Dabur India have climbed at least 9% since September, although they lag behind Sensex’s benchmark 31% gain, while food and drink maker Britannia has fallen around 5% .George Yang, Zara’s Anatole Investment Management company, could drop as much as 60%. The fast-fashion retailer was becoming a historical player, cannibalized by online and data-driven rivals, especially in China. Inditex has jumped about 40% since September 9, as flexible purchasing agreements have helped the world’s largest clothing chain operator adjust to changing demand. While the pandemic has forced it to temporarily close some stores, it has expanded its online sales. Yang stands by his belief, saying Inditex is rising high as investors cram into companies that could benefit from the theme of reopening the economy. “Its fundamentals are not impressive and eventually get worse,” said Yang.Jay Huck, Egerton Capital The call: Huck said cloud network provider Arista Networks is way too dependent on Microsoft Corp. and Facebook Inc., both choosing open source systems that could reduce its service revenues. That, combined with growing competition and an unsustainable multiple, led Egerton to set a target price of $ 150, he added. Arista’s shares have climbed more than 50% since September to exceed double Huck’s target price. Employees in all industries around the world have been forced to work from home thanks to Covid-19, which has resulted in a growing demand for Arista equipment and services as cloud computing providers. Turnover reached a record level in the last quarter. (Updates stock price movements) More articles like this are available at bloomberg.com



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