Wilson Asset Management

Australian shares took their biggest tumble in four weeks on Tuesday, dropping 1.4 per cent as fear of a full global outbreak sent jitters through most markets – but a rebound in trade since suggests many spectators viewed the fears as overdone.

WAM Global lead portfolio manager Catriona Burns said that she was approaching the outbreak with concern, but not alarm.

“We are cognisant that we went into the outbreak with markets at all-time highs, with valuations in some cases quite stretched. Any scare will create a sell-off,” she told The Australian.

She noted that the death rate in the most recent updates was between 2 per cent to 3 per cent compared to a death rate of 14 per cent during the SARS outbreak – a market drop she recalled working during back in 2003.

“We saw a really stock-specific impact at that time … It was industries such as hotels, travel and Chinese shopping demand that really took a hit, similar to what we expect in the most recent outbreak.

“We’re picking through to see where some undervalued opportunities might be, but you have to be careful in understanding where we are as the event plays out.”

Speaking at the release of the fund’s first-half results, where she reported a 185.7 per cent increase in operating profit before tax, Ms Burns noted the market needed to put the concerns into perspective.

“The government has responded a lot more quickly this time than the SARS outbreak, so the ability to manage the spread will be much more significant,” she said, adding that the timing of the outbreak during Lunar New Year was the biggest factor in the growing case count.

“It will be interesting to see if the Chinese government steps in to stimulate the economy – in which case some of the European and Japanese cyclical businesses could benefit.”

Over the past year the fund has increased its French and UK market exposures to 7.7 per cent and 6.3 per cent of its portfolio respectively, as it dials back its US exposure to 61.4 per cent.

Investment in Asia remains an even smaller weight in the portfolio, with no direct holdings in the Chinese market, as Ms Burns prefers to play the China demand growth thematic through investments in US-listed entities such as LVMH, which on Tuesday posted record revenues for the past year, or French-listed Airbus.

US-listed Alibaba and Hong-Kong listed Tencent are also a small part of the portfolio but it was Japanese listed discount supermarket chain Kobe Bussan that provided the biggest return for the half, jumping 43.4 per cent over the period.

The fund declared a fully franked interim dividend of 3c a share, representing a 50 per cent lift from the 2c dividend last year.