Despite the backdrop of low visibility in the markets ahead of the quarterly reports, private banks have been reaching out to their clients, releasing various investment themes they foresee would generate outsized returns in the near future.
A disclaimer that Quantflix does not endorse any of these investment themes nor their analysis. We just wanted to share some of these “high conviction” investment ideas (note that the estimates are based on the date of research and may no longer reflect current market prices)
The Alpha baskets:
1. Resilient Theme
However, the tickers within this basket have been found to be able to survive an extended shutdown due to high visibility FCF and resilient balance sheets, and in fact some may benefit from greater sales.
2. Quick Recovery post-Covid 19
There is a high concentration of retail names within this basket. Still, private banks are expecting these companies to rebound quickly once the dust has settled. These companies exhibit strong recovery abilities – gradual opening of China and the supply chains, defensive business model with long-term subscription-based customers etc.
3. Bank Theme
Banks have been one of the baskets that have been hit the hardest following the sell-off and the central banks rates re-adjustments, with some losing 50% of its market cap. In this basket, private banks are looking at banks with a well-diversified revenue stream, geographical diversification, and resilient past performance, all key metrics to indicate that the 50% loss of value is unreflective of the bank’s underlying.
4. Government Aid theme
Just half a year ago, China government announced measures to accelerate the issuance of over 1 trillion yuan of local government bonds, to prop up China’s slowing economy through infrastructure projects. As China slowly starts to re-open and relax its Covid-19 measures, private banks are expecting strong performance from construction companies
The Realized baskets:
1. E-Sports Basket
As countries go into lock-downs, the gaming basket becomes inevitably a desirable investment as people of all ages settle down in their homes and play video games. Reports have shown a 24% increase in video-game demand and a 20% increase in gaming streaming traffic in the period between January and March. Despite the cancellation of multiple video gaming conferences around the world, private banks are still expecting strong performance from this basket. Still, if you have not already bought into these tickers, it may have already been too late, as much of the alpha has been realized, according to private banks.
2. Healthcare Basket
With the current pandemic, global companies have ramped up their research and development process to find the miracle cure and vaccine to the Covid-19 strain. Demand for these mainstream treatment and medications have been unaffected, while those caused by complications from the pandemic have boosted demand. However, this basket has been labelled under the “realized baskets” not just because most of the alpha certainty has been realized, but for many of the US stocks, concerns over drugs pricing continues to be a key risk for the profitability of these companies in the months to come.
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