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Our briefing for Friday June 12, 2020:
Jun 12, 2020 3:18:36 PM
- As the number of coronavirus cases in the United States eclipse the two million mark, the Centers for Disease control and Prevention (CDC) released the latest version of their guidelines for living daily life during the pandemic. The CDC wants to remind Americans that the disease is still spreading, to limit the amount of people they associate with and public transit and travel is still risky. The CDC warns the country could see more COVID-19 cases as states continue to reopen throughout the summer and are reminding the public that getting flu shots in the fall will be more important than ever.
- In Canada, the province of Ontario took its biggest step to reopening since a state of emergency was declared nearly three months ago. The majority of Canada’s most populous province is entering stage two of its three stage reopening phase, which means shopping malls can reopen, restaurants and bars can serve customers seated outdoors, and places of worship can operate at a 30 per cent capacity. Large urban areas such as the Greater Toronto and Hamilton areas though remain in stage one.
- Elsewhere in Canada, major grocery chains Loblaws, Metro, as well as Walmart are facing public backlash as they have decided to stop giving their workers an extra $2/hr pay bump they put in place during the pandemic. “As the economy slowly reopens and Canadians begin to return to work, we believe it is the right time to end the temporary pay premium we introduced at the beginning of the pandemic," Loblaws chairman Galen Weston said.
- The United Kingdom government will review its policies on their 14-day travel quarantine on June 29th as the British Transport Secretary says they are trying to do everything to avoid a second wave of the virus. The review of the travel quarantine coincides with news that major airlines British Airways, easyJet and Ryanair launched legal action against the UK government’s actions saying it will devastate the country’s tourism and aviation industry.
- Horrendous. Horrific. Pathetic. These were the words used by India’s Supreme Court on Friday to describe Delhi’s local government’s handling of the coronavirus pandemic. The court stated patients were being “treated worse than animals” and while some have called for authorities to re-impose lockdowns in hard-hit cities like New Delhi, authorities are ruling it out. Senior doctors and health officials in the New Delhi area are saying many more patients are dying of COVID-19 at their hospitals than what official figures suggest.
- The United Arab Emirates have stated they would increase efforts to bring back nearly 200,000 of its residents stranded worldwide due to the restrictions caused by the coronavirus. Expatriates who want to return need to register online and upon returning, must self-quarantine for 14 days on their own and install apps to monitor their health.
- Japan will launch a smartphone app based on technology from Apple and Google next week, according to the government. Smartphones with the app installed will be able to detect each other via Bluetooth, and log those who come in close contact. If a phone user is found to be infected, people who spent more than 15 minutes within a one metre (3.3 feet) distance to that individual over the previous 14 days will be notified and prompted to seek medical consultation. The message will only be sent if the infected person gives consent, and a positive diagnosis will remain anonymous to the receiver of the notification.
Covid-19 – Due Diligence And Asset Management
The Early Pandemic Warning That Woke up Wall Street
Brief: The warning was stark. It was late January, and there were just six known cases of Covid-19 in the US. A leading infectious disease specialist who previously had battled Ebola and SARS had an alarming message for a group of money managers: It was about to get a lot worse. “In the 20 or 30 years I’ve been involved in emerging infections,” Jeremy Farrar told the managers on the January 31 call, “I’ve never seen anything that has been as fast or as rapidly moving and dynamic as this has been.” The director of the Wellcome Trust, a UK health foundation, followed that up with an estimate on a February call that deaths in the US related to the spread of the new coronavirus could reach between 500,000 to 1 million within a year assuming there were no lockdowns or other restrictions. The calls held for managers of Wellcome’s $33bn endowment served as one of the earliest known warnings to investors about the coming impact of a disease for which humanity had no immunity. The information spread like a kind of samizdat among certain quarters of Wall Street, and beyond. Those who took heed of the predictions from Dr Farrar, an adviser to the UK and German governments on the virus, spread the word to friends and family and took steps to try to protect their investments from the virus’ fallout.
KKR’s Apple Leisure Said to Hire Advisers, Weigh Capital Raise
Brief: Apple Leisure Group has hired advisers as it contemplates raising new capital after being battered by the Covid-19 pandemic, according to people with knowledge of the matter. The travel and hospitality company, as well as owners KKR & Co. and KSL Capital Partners LLC, have hired financial and legal advisers, said some of the people, who requested anonymity because the matter is private. The company is not currently weighing restructuring or bankruptcy as an option, some of the people said. Apple Leisure has a $950 million first-lien loan due in 2024 that last traded at about 67 cents on the dollar, according to data compiled by Bloomberg. It fully drew down its $175 million revolving credit facility earlier this year, a person with knowledge of the matter said. Representatives for Apple Leisure and KKR declined to comment and a spokeswoman for KSL didn’t immediately have a comment. Apple Leisure Group focuses on trips to regions including Mexico and the Caribbean. It specializes in all-inclusive resorts, which sell lodging, food and other services for a single price. The model, once viewed primarily as a budget way to travel, was having a moment before the coronavirus, with Marriott International Inc. and Hilton Worldwide Holdings Inc. embracing the concept.
Mega-Rich Urged to Unleash $121 Billion for Desperate Charities
Brief: Billionaires are getting a clear message from nonprofits, lawmakers and even other billionaires: Many of you already got tax breaks for giving away your money. Now, amid the pandemic and recession, it’s time to ensure cash actually gets to charities quickly. For the past several years, wealthy Americans have poured billions of dollars into donor-advised funds, or DAFs, vehicles that have grown popular because they’re so flexible. Givers get an immediate tax break, which can equal 57 cents or more of every donated dollar, but they have unlimited time to decide where the money should go. Many nonprofits worry the surge of money into DAFs has cost them in recent years as total giving by individuals has stagnated. Some lawmakers seem to agree. Congress barred DAFs from taking advantage of new incentives for charitable giving included in the $2.2 trillion CARES Act approved in March. In California, state legislators proposed pushing major DAF providers to be more transparent. Now, the pandemic is prompting more money to flow out of DAFs and into charities where it can do some good. Fidelity Charitable, the nonprofit arm of Fidelity Investments, said in late May that giving from its DAFs was 30% higher so far this year. Vanguard Charitable and Schwab Charitable both said giving increased about 50% over similar time frames from February to mid-May.
Hedge Fund Positioning Data Shows How Market Ran Away From Them
Brief: New positioning data shows how frustrating a straight-up rally in companies with shaky finances has been for professional speculators. While they are getting a measure of recompense today, hedge funds have struggled after shunning airlines, hotels and restaurants, with exposure sitting near multiyear lows, data compiled by Morgan Stanley’s prime brokerage unit show. The aversion toward companies hit hardest during the pandemic contrasts with retail investors, who piled into stocks like American Airlines, putting all their chips on an economic reopening. It’s the latest example of the widening division between Wall Street and Main Street. Professional money managers have been reluctant to embrace the most speculative stocks amid concern that the worst is not over with the coronavirus. Hedge fund clients at Morgan Stanley have stuck to the safety of the stay-at-home trade, with holdings in technology and health-care hovering near a decade high. “I would venture to guess that hedge funds are looking at the fundamentals of investing. The typical recovery doesn’t happen this quickly,” said Tracie McMillion, head of global asset allocation strategy for Wells Fargo Investment Institute. “Maybe retail investors saw what happened in ‘07, ‘08 and are using that as their model and realizing that had you invested when that market was down, you would have had a significant return over the past decade.” While hedge funds’ cautious stance helped them avoid deeper losses during the March selloff, it’s now pressuring returns with tech shares lately trailing cyclicals such as airlines.
Abu Dhabi’s Mubadala Says it is Well Placed to Handle Virus Challenge
Brief: Abu Dhabi state fund Mubadala said on Thursday its strong liquidity position and a diverse portfolio will help the fund tackle the challenges posed by the coronavirus outbreak and weak oil prices, as it posted a four-fold jump in its 2019 income."All of this positions us very well to handle this very extraordinary situation in the best way possible," group chief executive Khaldoon Khalifa Al Mubarak said referring to the fund's strong balance sheet and $232 billion portfolio in a video message.Mubadala Investment Co's total comprehensive income grew to 53 billion dirhams ($14.43 billion) in 2019 from 12.5 billion dirhams in 2018, helped largely by gains in its public equity portfolio and funds.Assets under management also rose 1.5% to 853 billion dirhams or $232 billion at year-end, it said in a statement.The results are also the first to consolidate the full-year results from the Abu Dhabi Investment Council, an investment arm of the Abu Dhabi government, which joinedMubadalain 2018."Not only did we deliver strong financial results, but also continued to grow our presence across multiple asset classes in key sectors and markets," Mubarak said.The Abu Dhabi sovereign investment company said it realized 63 billion dirhams in 2019 from the "monetization of mature assets and distributions from investments locally and abroad."
Emerging Markets Enjoying Their Strongest Crisis Bounceback Ever
Brief: Emerging markets (EM) stock markets are enjoying their strongest crisis bounceback ever, as coronavirus (COVID-19) infections stabilise and governments remove two-month-long lockdowns.Economies around the world have been hit by the shock of the pandemic and many have also suffered from a concurrent oil price shock sparked when Russia walked out of the OPEC+ production cut deal on March 6. However, as economies open up again and oil prices have broken above $40 after almost halving in price in the last two months, investors have turned “risk on” again and are snapping up cheap shares ahead of their inevitable rebound. “At this point in the rebound, this EM rally is now the strongest of any of the big-5 EM sell-off rebounds (1998, 2001, 2008, 2016, 2020) and with US, DM and safer (particularly Asian) EM equity markets having less than 10% to go before reaching pre-coronavirus (Jan-Feb) 2020 peaks, investors are being forced up the risk curve in search of potential returns,” Daniel Salter, head of equity strategy at Renaissance Capital (Rencap), said in a note on June 10. Russia is in the vanguard as one of the “safe haven” markets thanks to its low debt and large reserves, and the economy is already showing signs of a rebound. Rencap saw it coming and marked the whole Russian market up to Buy in the first week of May, in what is now starting to look like a classic call, as bne IntelliNews reported at the time.
