Here at Montgomery we have been tracking COVID-19 testing data, rather than just cases alone. Our logic is that testing drives cases, and that case growth would drive markets. So understanding testing might give us some early insight as to the likely preparedness of governments, and also to the dynamism of their response upon realising that a COVID-19 problem exists.

Its helped us position our portfolio as best we can to weather the market downturn so far. We don’t have all the answers, but wanted to share what we have found. In this three part update, I will share some observations.

1. Using testing as a way to flatten the curve – the South Korea analysis

  • Data suggests that testing and contact tracing has been used effectively by South Korea to deny the virus the opportunity to transmit on a mass scale freely. Its should be stated that new COVID-19 cases continue to emerge in South Korea, but at around 100 a day, which appears to be at a level the health system can cope with.
  • South Korea appear to have a credible disease control body (South Korea CDC) and medical diagnostic capability which in combination have acted to combat COVID-19’s transmission rate.
  • The CDC’s disclosure is excellent and regular, first disclosing information on COVID-19 on 20 January 2020, it has released information a further 128 times to date, including information on testing volumes, contact tracing as well as disease incidence and fatality cohort information.
Notable mitigation actions we observed include:
  • Developing a COVID-19 test that reduced cycle times from 24 hours to 6 hours early on in disease incidence progression. The new test was available if and when scale testing was needed.
  • Aggressive contact tracing – South Korea obtained laboratory confirmation of its 30th case on 16 February. They had traced 1,900 contacts by 17 February relating to its first 29 cases. A huge effort rapidly deployed. South Korea appeared to use this strategy as a way to identify potential future cases, isolating them until test results proved those potential cases did not have COVID-19.
  • Ramping test volumes to significant levels per capita, particularly when compared to peers (more on that later).
  • Moved to close public spaces at just 150 cases, its society having lived through the 2015 MERS outbreak are aware of the need for social distancing to combat virus transmission rates.
  • South Korea used testing, combined with other actions, as an offensive tool to stop the transmission potential for COVID-19.
  • To date they have performed over 324 thousand tests, which in per capita terms is the equivalent of 6,328 tests per million of population. South Korea has tested hard, and it looks so far to have been effective. Volumes of cases have fallen. The testing cadence is being maintained and the detection rate (DR%) is now back sub 2%.

Source: South Korea CDC, Division of Risk Assessment & International Cooperation, Montgomery

2. How prepared are Western Governments?

We looked to assess the COVID-19 preparedness of other Western Democracies through the lens of their testing activities. The logic being that Governments, if prepared, would want to utilise the ability to test as an early warning system first, and then later as a tool that could be used to go on the offense against the virus as South Korea had.

We looked for consistent testing data, and found little to no disclosure except in Italy (IT), UK, US and NSW here in Australia.

2a) Italy – The dangers of not knowing disease incidence

  • Italian testing data become available post it becoming clear that there was a potential problem in Italy.
  • To date Italy has performed 275,000 tests, or 4,058 tests per million of population. Our view is that Italy didn’t appear to have testing as part of an early warning system, and so was unaware of the level of COVID-19 infection incidence amongst its population.

Source: Dipartimento della Protezione Civile, Montgomery

  • Italy did ramp up testing, as the above chart of daily testing shows. The ramp up to around 12,000 tests a day from 11 March, and 24,000 tests a day from 20 March, seemed too late, by then Italy already had detected 12,462 & 47,021 cases respectively, suggesting with the benefit of hindsight containment as a strategy to avoid mass casualties was too late. As evidenced by a chronically rising detection rate despite a five fold increase in testing cadence since early March.
  • Denied the opportunity to use the test and trace hard doctrine of South Korea, Italy has moved through various stages of lockdown as a way to slow transmission, whilst coping with an unbearable load on their health system.
  • Detection rates, the percentage of tests that come back positive, remain high in Italy at 23% of tests performed so far, but the evidence of the last 3 days suggest that this is peaking. We really hope so.

2b) The UK – Credible Test Volumes early, but hasn’t scaled

  • This is where it started for me, my family are in the UK and I wanted to understand the UK’s testing regime. I would go to the NHS website every day and look at test volumes and cases. What I found initially gave me some comfort that the UK had test volumes at decent level, like that of an early warning system. I checked out the testing volume levels to see how it compared with South Korea.
  • Initially the UK early warning testing levels were consistent with the South Korea experience, the UK started to regularly detect cases at the end of February. At that point test volumes started scaling, from the low hundreds a day to 1-2000. I was seeing what I thought I would, the UK government reacting to its effective early warning system and was ramping testing.
  • However scaling was slow, way too slow. South Korea scaled its testing volumes from sub 1000 a day to over 5000 in 8 days. The UK took 14 days to do that. In that extra week the incidence of this virus will likely have doubled and doubled again.
  • Post attaining the 5000 test a day mark, South Korea ramped volumes up to 10,000 cases a day a further 8 days later. Today UK is doing 5-6000 tests a day. The UK looks like it hasn’t taken advantage of its early detection, it appears to have missed the opportunity to scale testing, for whatever reason, despite detecting a steadily increasing incidence amongst its testing population as evidence in the chart below. Its likely that – like everywhere – there is a shortage of test kits & capability. Detection rates are rising, dramatically.

Source: UK NHS, Github, Montgomery

2c) The US – why we are holding so much cash

  • We started tracking the US testing data via the disclosure from the US CDC. However we found it was 3-5 days behind the curve. The disclosure was sporadic, the data difficult to manage and not consistent with an organisation that had a clear picture of control to present.
  • We have all now seen the news reports regarding the problems the US CDC had on developing a COVID-19 reliable test. That’s consistent with what we observed in the data, something was wrong, US test volumes didn’t start scaling until 13 March.
  • As an observation the CDC data for February suggests US testing volumes were at around 100 tests a day which is extremely low levels relative to the size of the US population and the available evidence of COVID-19 disease transmission inside the US. For instance NSW health disclosure reports a material number of cases introduced to Australia came from US air passengers.
  • The US Federal Government’s stance that COVID-19 wasn’t an issue all the way through February and for half of March also raises valid questions regarding the preparedness of the US for COVID-19.
  • We also saw in the CDC disclosure that the known epidemiology rate (epi rate), the percentage of cases where the source had been identified was low, really low, the data consistently showing it around the 8%-15% level. This compares to South Korea which despite a materially higher case volume at the time was regularly over 80%, and here in NSW today at 72%. If testing is to be used as a tool to fight the transmission rate of this virus, a credible contract tracing capability needs to be working alongside a scale testing regime. This level of epi rate in the US is not consistent with that.

So where are we today in the US? 

Testing is ramping hard, the industrial might of the US has now been tasked to solve the scaling of testing problem. Its ripping now – see chart below – data suggest the US performed 2,234 tests on 12/3/20, yesterday (US time) saw 54,111 tests performed. Its clear from the political narrative that test volumes will rise – with President Trump calling out 2 million tests a week would be available by the end of next week, and 5 million the week after that, suggesting that that volume level would not be needed. We hope so.

Source: The COVID Tracking Project, Montgomery

  • The issue with ramping testing late, is that significant transmission appears likely to have already occurred.
  • Subsequently this increase in testing will likely unveil a significant number of cases. The more you test the more you find – as evidenced by a rising detection rate in the chart above, despite the volume of testing tripling since 16 March.
  • Its not clear if the US, even if it ramps testing into the 100’s of thousands a day, will be able to then take that test data, perform aggressive contact tracing on this testing scale and use this as a tool to get ahead of the transmission rate of the virus and “flatten the US curve.”
  • We think the largest driver of financial markets has been a rising awareness, through rising case volumes, of the potential unpreparedness of the US for COVID-19 with the consequences for the US health system and citizens there that this could mean. This has contributed significantly to our portfolio positioning as defensive, and holding maximum levels of cash.

3. What about Australia? NSW analysis gives us some insights

· NSW Health started reporting COVID-19 testing data on 25 January, sometimes reporting twice a day. The data released regularly reported case epidemiology, with a high trace rate, as well as good data on disease incidence by age cohort.

· NSW Health also appeared to have started early with a testing plan, and we note that when that testing regime scored a hit, testing volumes jumped, and kept ramping.

· As of 24/03/2020 NSW had performed 61,848 tests, found 818 cases, with sadly 7 deaths. To date NSW health has performed 7,731 tests per million of population. This is the highest of the datasets we have examined.

Source: Montgomery

NSW analysis gives us some insights

  • The significance of these test levels per capita is further drawn out when considered against the levels of disease incidence observed. NSW has detected 818 cases, South Korea 8,897 cases, Italy 59,138 cases, UK 5,683 cases and the US 31,888 cases. It appears that NSW has its early warning test system up and running and is now looking to scale this further (11/3/20 – NSW health moved from 3 hospital venues for testing to eventually 18).
  • Media reports and anecdotes from people who have gone through the NSW testing process suggests that there simply are not enough tests to perform mass testing yet. Demand is much greater than supply, and so the health service is currently employing policies of targeting testing in areas where evidence of COVID-19 contact exists or international travel occurred and symptoms exist. This is not the test hard doctrine of South Korea. More supply of tests and a subsequent policy change on their use at NSW Health has still to happen if we are to see NSW’s good start in its testing regime follow the path of South Korea. Test kit availability will clearly be key over the coming days.

What we must do now is capitalise on this position. And that’s where you, our investors and blog readers can do their part. Social distancing, none of us knew what that was 2 weeks ago. But we do now. The analysis and evidence presented above shows that the most effective tool was simply to know where the virus was and isolate, pushing down on that transmission rate by denying the virus contact to the next host with which to propagate on. You know what to do.

Whats next?

We don’t know. There are plenty of stocks for us to look at that are cheap that’s for sure. Dominic and I spend our day discussing which stocks will “make it to the other side”.  We are grappling with how long a shutdown/lockdown scenario could apply in Australia and the impact of the stimulus provided by our Government, regulators and Central Bank. As well as that offered up in other countries. We saw a $4 trillion number mooted for the US this morning, that was $1 trillion a week ago. Its fast moving.

One last chart

We are calling this one the re-election chart or Government Competency Index… Decide for yourself.

Source: Montgomery

The chart should be viewed in the context of the following data table, which identifies when a Government recorded its 100th case of COVID-19. This is t0, the following row (Tests t0) shows the test per capita on that date. We then look 7 & 14 days later t7 and t14 and show the tests per capita on those days to get a sense of the government’s response to the problem. Have they been prepared and have they done enough. We expect future elections may be decided on facts just like these. President Biden?

NSW SK IT UK US
Date t0 14/03/2020 20/02/2020 24/02/2020 5/03/2020 4/03/2020
Tests t0 2,562 221 64 266 13
Date t7 21/03/2020 27/02/2020 2/03/2020 12/03/2020 11/03/2020
Tests t7 5,862 801 344 430 104
Date t14 28/03/2020 5/03/2020 9/03/2020 19/03/2020 18/03/2020
Tests t14 Future 2,433 793 952 1,089

Source: Montgomery

Stay Healthy
Gary Rollo



Mark

Awesome research & article Gary.

Peter Edwards

Here is a another source of data for testing and mortality risk from Covid-19. The data is dated (20-Mar-2020), so a little out of date in this highly changing environment. https://ourworldindata.org/ https://ourworldindata.org/covid-testing https://ourworldindata.org/covid-mortality-risk This source of data would indicate that the Australian Governments (Federal and State) are doing a good job. A high level of testing should reduce the mortality risk. In the end, all governments will be judged by the mortality rate.

Ryan E

Great article.

Gary Rollo

Mark, Peter & Ryan. Thanks for your comments. Peter I will check out those sources. Gary

Andrew Johnston

Great research, Gary. Total # of tests done and DR% are such crucial data that is too often ignored.

Graham Revill

Thanks for well explained detailed information. A bit missing that I can't find is a record of how many tests were done on each day in Australia. I think this is very important but I might be wrong. I have been told repeatedly that there are not enough test kits available anymore. (They are always just a couple of days away from somewhere.) If we are running out of test kits and are rationing them then if we have 500 kits for a day and a highly biased triage protocol for qualifying for a test then it seems very likely that we would find 425 positives. I would think we need to be able to maintain 10000 tests per day and many of those should be used in random testing of a variety of people eg car drivers, pedestrians in several locations and perhaps door to door. Plus the usual suspects like those with symptoms.

Chris Jolly

Hi Gary, Great research. Your last chart is the only one that plots # of tests over time that I can find anywhere. As a medical researcher with vulnerable family members, I'm concerned to know how much Australia's detection of COVID-19 cases is driven by testing rates rather than by the reality of infection rates. Would you mind telling us exactly where you sourced the daily NSW testing raw numbers please? Regards, Chris J