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Our briefing for Friday February 5, 2021:
Feb 5, 2021 4:17:06 PM
- In the United States, the White House announced on Friday 1,000 active-duty military will be deployed to COVID-19 vaccination centers to help with the process. President Joe Biden has called for setting up 100 mass vaccination centers over the next month – two of which will be opening in California – with military personnel arriving at those facilities in a little over a week. According to Bloomberg, about 6.9 million Americans have the full two dose regimen from the Pfizer and Moderna vaccines, which translates to approximately 2% of the population. To reach widespread or “herd” immunity – about 70% to 85% of Americans must be vaccinated.
- In Canada, the latest employment numbers were released and the economy lost 213,000 jobs in January. Canada’s unemployment rate sits at 9.4%, the highest rate since August and wiping out the gains made during the fall. The country’s two most populous provinces – Ontario and Quebec accounted for almost all of the losses due to many retail sector jobs disappearing due to lockdowns. There does seem to be good news though coming out of both of those provinces. Ontario reported more than 1,600 cases on Friday, which is about 50% less than what they were reporting a month ago and Quebec has started to see COVID-19 hospitalizations drop, along with daily cases.
- United Kingdom scientists confirmed that the Oxford/AstraZeneca COVID-19 vaccine works about as well against the new B.1.1.7 strain, as the original coronavirus strain. Andrew Pollard, Professor of Paediatric Infection and Immunity and Chief Investigator on the Oxford vaccine trial said the following: “Data from our trials of the ChAdOx1 vaccine in the United Kingdom indicate that the vaccine not only protects against the original pandemic virus, but also protects against the novel variant, B.1.17, which caused the surge in disease from the end of 2020 across the UK.” This news comes as the UK government announced that all Britons aged 50 and over will be vaccinated against the coronavirus by May.
- Mexico’s President Andres Manuel Lopez Obrador posted a video on Thursday saying he tested negative on an antigen test, 12 days after testing positive for COVID-19. To prove the point on his good health, President Lopez Obrador walked down a flight of stairs at the National Palace. While Mexico’s leader might be doing better – the country is not – posting 1,682 deaths due to COVID-19, close to a daily record on Thursday. In the video, President Lopez Obrador didn’t say when he would end his isolation and return to public appearances.
- Reuters is reporting Brazil’s Prosecutor-General Augusto Aras has opened a preliminary investigation into President Jair Bolsonaro and his health minister on possible negligence in response to a COVID-19 outbreak in Manaus City. The region, located deep in the Amazon rainforest, was hit hard by a second wave of the coronavirus, causing the city to run out of oxygen tanks in January. This prompted the government to fly in tanks, so people literally wouldn’t choke to death. The document stated If eventually wrongdoing was found, a request for the beginning of an “inquerito” will be submitted to the Supreme Court.
- In Australia, the city of Perth and the surrounding region snap five-day coronavirus lockdown was lifted on Friday after no new cases of community transmission in that time period. The state of Western Australia recorded no new cases from almost 50,000 tests conducted during the lockdown, but some restrictions would remain in place until February 14th, such as mandatory mask wearing for residents while outside of their homes and a 20-person limit on all indoor private gatherings.
Covid-19 – Due Diligence And Asset Management
BNP Paribas Expects End to Trading Boom, COVID Loan Pain to Ease
Brief : BNP Paribas warned investors on Friday that a debt-trading bonanza that supported its earnings last year was unlikely to last, while signalling that the worst of the global coronavirus crisis was over for its loan book. Charges linked to the COVID-19 pandemic took their toll on fourth quarter net profit at BNP Paribas, which said it had set aside more provisions for loans that could turn sour. But the eurozone’s biggest listed bank struck a more upbeat note for 2021, saying it expected its cost of risk, which reflects provisions for bad loans, to drop compared to 2020 as the outlook improves in the second half. Another side-effect of the pandemic, a surge in fixed income trading business, provided a boost to earnings in the fourth quarter, but BNP Paribas warned that this level of market activity was unlikely to persist in 2021. The Paris-based bank said revenue at its corporate and institutional banking business rose 6.9% in the quarter as fixed-income, currencies and commodities (FICC) trading revenue jumped by 22%, mirroring gains among its global competitors. “FICC is unlikely to experience the same magnitude of revenues that it generated in 2020 on the back of exceptionally intense client activity”, BNP Paribas said in a statement.
Health of UK DB Scheme Surpasses Pre-Covid Levels, but Pandemic Impact May Be Overlooked
Brief: The health of the UK’s Defined Benefit (DB) pension schemes has surpassed that of their pre-Covid levels as they continued to recover through Q4 2020, according to Legal & General Investment Management (LGIM). LGIM's Health Tracker, a monitor of the current health of UK DB pension schemes, found that the average1 DB scheme can expect to pay 97.1 per cent of accrued pension benefits as of 31 December 2020, up 1.6 per cent from 30 September 20202. This compares to the pre-COVID level of 96.5 per cent from 31 December 20193 as well as the lows of 31 March 20204 which saw the EPBM (Expected Proportion of Benefits Met) metric drop to 91.4 per cent. This latest improvement means LGIM’s measure was actually up on 2020 (from 96.5 per cent to 97.1 per cent) despite falling to 91.4 per cent at the end of March and marks a third successive quarter of growth across 2020. Nominal rates were around 0.6 per cent lower at the end of 2020 than at the start, but the impact from this was outweighed by the overall performance of growth assets over the year. However, it is important to note that these figures may yet still understate the negative impact of the pandemic, due to a weakening of covenants that many schemes will have endured. John Southall, Head of Solutions Research at LGIM, says: “The last quarter of 2020 was another positive period for our measure of UK DB scheme health, with the ratio continuing to rise, as it has consistently done so since the March lows of 91.4 per cent. This change was almost entirely driven by outperformance of growth assets with interest rates and expected inflation broadly flat over the quarter.
Alpha-Generating Opportunities Surge in Japan, as Economic Recovery and Market Reforms Gather Pace
Brief: Japan’s macroeconomic backdrop is strengthening alpha-generating opportunities for hedge funds, with a growing number of newly-launched Japanese equity strategies looking to capitalise on a kaleidoscopic range of stockpicking ideas arising from market-friendly structural reforms, a pick-up in economic momentum, improving fundamentals, and a falling number of coronavirus cases. Strategists at Lyxor Asset Management said on Friday the prevailing market landscape appears supportive for risk assets and stronger economic growth heading into Q2, with a second Covid-19 wave now appearing past its peak and its impact so far appearing largely manageable. “With the pandemic gradually abating and as the Japanese economy regains some momentum, we see a wider set of investment themes, supporting stockpicking,” senior Lyxor strategists Jean-Baptiste Berthon and Philippe Ferreira, and EU head of hedge fund research Bernadette Busquere Arnal, said in a market commentary. “These themes include stocks sensitive to domestic consumption, exposure to Asia, reflation policies or capex. The alpha environment has already improved.”
Prudential CEO Looks to Expand Abroad, in Asset Management
Brief: Prudential Financial Inc. Chief Executive Officer Charles Lowrey unveiled his three-year strategy to transform the company through deals, cost savings and share buybacks. The life insurer has allocated $5 billion to $10 billion to invest in and acquire growth businesses, which will contribute more than 30% to its earnings by 2023 from a current 18%, Lowrey said Thursday in an interview. The firm is looking to expand in China, India, Indonesia, Latin America and Africa, and is considering bolt-on purchases in asset management, he said. “Our strategy is designed to deliver higher growth, with greater efficiency and lower market sensitivity,” he said. “We’re always looking for strategic acquisitions.” Lowrey, who took the helm in December 2018, laid out the plan alongside Prudential’s fourth-quarter results. After-tax adjusted operating income was $2.93 a share, beating the $2.56 median estimate of 13 analysts surveyed by Bloomberg. The CEO also laid out plans to cut $750 million in costs and return about $10 billion to shareholders via dividends and share repurchases over the next three years. Prudential aims to halve the contribution of individual annuities to its earnings, and it’ll achieve this through sales, reinsurance transactions or the expiration of policies, Lowrey said.
Assured Capital Partners Positive on Outlook for 2021
Brief: Assured Capital Partners' Balanced Growth Fund had another extraordinary year in 2020, despite the coronavirus pandemic, narrowly missing out on surpassing a 40 per cent return for the third time in the fund’s existence. According to hedge fund database service EurekaHedge, the fund has now returned over 376 per cent since inception as of the end of 2020 and the firm is positive on the outlook for the year ahead, despite the ongoing economic disruption caused by the Covid-19 crisis. Assured Capital writes: "In early 2021 there’s nearly USD5 trillion sitting on the sidelines at the moment. That’s about a qaurter of the total US Gross Domestic Product on an annual basis (2020: USD20.8 Trillion). Not to mention the government is considering further injection of cash into the economy via additional rounds of stimulus. And when all of this pent-up capital gets unleashed on the market, and the economy at-large, the upshot will likely be staggering. "Additionally, the Federal Reserve Bank has indicated it intends to maintain a low interest rate policy for the foreseeable future. Presumably keeping bond yields suppressed in the near-term. Forcing more investors to seek positive returns in equities. Also, many companies will see favourable earnings comparisons during much of 2021 relative to last year leading to a large swath of positive earnings beats.
2020 Was Terrible for Real Estate Investing. Will 2021 Be Better?
Brief: With office buildings emptied, hotels left vacant, and commercial tenants struggling to pay rent, it should come as no surprise that 2020 was a challenging year for real estate investing. In private equity real estate, deal making plummeted in both number and value, with the total deal value declining 50 percent from 2019 levels, according to Preqin data. Deal numbers, meanwhile, dropped from 9,848 in 2019 to 5,979 last year. This slowdown in deal making was accompanied by a decline in fundraising, with 283 funds closing in 2020, compared with 494 funds in 2019. As in other alternative classes, large funds run by established managers had the most success in fundraising, with the ten biggest funds accounting for 34 percent of the total capital raised. In total, private equity real estate funds secured $118 billion in investor commitments in 2020, a 34 percent decline from the previous year’s total, Preqin said. “Restrictions on travel, lockdowns, and reduced physical interaction among market participants hit fundraising and played a major part in deal declines,” David Lowery, head of research insights at Preqin, said in astatement.
