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Our briefing for Friday November 27, 2020:
Nov 27, 2020 3:27:45 PM
- In the United States, the number of COVID-19 patients being treated in hospitals across the country reached 90,000 on Friday. The rate of hospitalizations are now at the highest level since the pandemic began. That number is only going to increase as people who gathered with family and friends over the Thanksgiving holiday could become sick over the next few weeks. According to America’s Transportation Security Administration, more than 1.07 million people travelled through the country’s airports the day before Thanksgiving – the busiest day since the start of the pandemic. Nearly six million Americans travelled via the air from Friday to Wednesday – that number though is less than half compared to the same time period last year.
- In Canada, Prime Minister Justin Trudeau announced during a Friday news briefing that the federal government has chosen a senior military commander to lead its COVID-19 vaccine distribution effort. Dany Fortin, the current chief of staff to the Canadian Joint Operations Command will head up vaccine logistics within a new branch of the Public Health Agency of Canada (PHAC). Reporters questioned why Prime Minister Trudeau didn’t appoint a military liaison earlier – for instance, the United States has had one in place for months. “I can understand the eagerness with which people want to know when this will be over, when we’re going to get vaccines. What we can say is we’re going to work extremely hard to deliver as quickly and as safely as possible,” said Trudeau. The prime minister also noted that Canada is on track to vaccinate nearly every person that wants a shot by September 2021.
- In the United Kingdom, Prime Minister Boris Johnson continues to defend his government’s new three-tier system to contain the coronavirus once the national lockdown ends next week. The prime minister has come under fire from his fellow Conservative party members with as many as 70 members claiming the system was arbitrary and not backed by evidence. Their argument might carry more weight with the latest COVID-19 data released in the country. The R-rate, which estimates how many infected people pass along the virus onto others, is in the 0.9-1 range, based on data up to November 24th. This would mark the first time the virus isn’t spreading exponentially in the UK since August 14th.
- Australia’s Victoria state is reaping the rewards of a strict coronavirus lockdown, but government officials also don’t want to jinx it. Victoria has gone 28 days with no new cases of the virus after enduring one of the world’s strictest and longest stay-at-home orders. At its peak – there were nearly 700 cases per day in August. The success means Australia could be one of the few western nations that can look forward to a holiday season with limited restrictions on family gatherings. However, infectious disease experts warn Australia faces an ongoing risk of the virus entering the community from returning overseas travelers – despite a mandatory system of hotel quarantine. More than 30,000 Australians, many living in Europe and the United States, where the virus is surging, are waiting to return home.
- India is the latest country to enter a recession with the economy contracting in the three months through September due to the lingering effects of the coronavirus. India’s GDP declined 7.5% in the last quarter, milder than the 8.2% economists predicted and considerably better than the disastrous record 24% contraction in the previous quarter. The second straight quarterly decline in GDP though pushed India - Asia’s third largest economy into its first technical recession in records going back to 1996.
- Brazil’s President Jair Bolsonaro is at it again. The always outspoken leader, who contracted the coronavirus in July, said he won’t be taking any working COVID-19 vaccine himself and called the use of masks to limit the spread of the disease, “the last taboo to fall”. “I tell you: I will not take (any vaccine). It is my right, and I am sure that Congress will not create difficulties for whoever doesn’t want to take a vaccine,” said Bolsonaro. The president’s comments alarmed Brazilian health experts who worry Bolsonaro’s words could undermine their attempts to get the general public onboard to achieve successful vaccination levels once the time comes. The only silver lining health experts can take from President Bolsonaro’s wide ranging set of comments: any inoculation certified by Brazil’s health agency will be available free to the public, according to the country’s leader.
Covid-19 – Due Diligence And Asset Management
JPMorgan’s Pil Sees Quick Return to Office Boosting Real Estate
Brief: People will likely return to the office more quickly than expected and that will help boost the price of some commercial real estate, according to J.P. Morgan Asset Management. Investors may be making a mistake by extrapolating the future from the current situation with lots of working from home due to Covid-19, according to Anton Pil, global head of alternatives at J.P. Morgan Asset Management, part of JPMorgan Chase & Co. Top malls worldwide should see a faster-than-expected rebound in traffic, he said, and there’s an overshoot in expectations about how many people will want the status quo versus returning to the office. “I’m expecting a pretty significant rebound in valuation,” Pil said in a phone interview Wednesday. “Financing terms are at some of the lowest levels that we’ve ever seen, and the income generation continues to be quite strong, at least if you own top-notch offices in strong locations.” Urban centers have been able to survive previous pandemics and will do so again this time, Pil said. He pointed to the co-working trend as evidence that even when people could work from home they found there was value in being around others. However, investors are taking things slowly at this point, with commercial real estate dealmaking in the third quarter far below pre-pandemic levels, according to data from CBRE Group Inc. and Real Capital Analytics Inc. Pil also said that easy monetary policy and available financing means that it’s harder to tell which companies have simply been hurt by the pandemic and which have business models that just aren’t viable.
Canada’s Richest Grew Their Fortunes by $53 Billion During the Pandemic
Brief :As Canadians lost their jobs during the COVID-19 pandemic and businesses shuttered, the country’s richest got richer. A new report by Canadians for Tax Fairness reveals Canada’s top 44 billionaires grew their fortunes by $53 billion from April to October, or by more than 28 per cent. Only one of them, Michael Lee-Chin of AIC Investments, didn’t maintain or increase wealth. “While millions of households are struggling to survive through the pandemic, our top billionaires have made out like bandits, including some who have cut pandemic pay for their front-line workers,” said Toby Sanger, economist and director of Canadians for Tax Fairness. “As Finance Minister Chrystia Freeland prepares to table the government’s fall economic statement and consider ways to pay for the crisis and recovery, she should go to where the money is.” The period coincides with a massive rally off the bottom for stocks and a surprisingly strong run for real estate, but the trend has been playing out over the past decade. The report found the number of Canadian billionaires and their wealth has more than doubled. Between 2010 to 2019, only the top 1 per cent increased their share of total wealth, while it fell for everyone else.
Goldman Sees Many in U.S. and Europe Vaccinated by Mid-2021
Brief: Goldman Sachs Group Inc. expects large swathes of the public across major developed economies to receive a vaccine against the coronavirus by the middle of next year, driving a “sharp pickup” in global growth. The bank’s economists predict that half the U.K. public will be vaccinated in March, with the U.S. and Canada reaching that threshold a month later. The European Union, Japan and Australia are due to follow in May. “We expect large shares of the population to be vaccinated” toward the end of the second quarter, economists Daan Struyven and Sid Bhushan wrote in a report to clients. With production increasing, the vaccination rate is set to exceed 70% in the autumn. The best hopes for ending the pandemic, which has sunk the global economy into its deepest contraction since the Great Depression, rest on deployment of a vaccine. While experimental shots have produced positive trial results, drug makers and governments face logistical hurdles to successfully vaccinate hundreds of millions of people around the world. Should some of the vaccines in development not prove successful, supply -- particularly in the EU -- would rise more slowly, the economists wrote.
Private Credit Managers to Provide More than USD100bn of Financing During 2020, says ACC
Brief: Private credit managers will provide more than USD100 billion of financing during 2020 as economic uncertainty and low interest rates are reducing the attractiveness of traditional fixed income assets, according to research published by the Alternative Credit Council and Allen & Overy. The ACC’s 6th 'Financing the Economy' research paper showed that 88 percent of firms expect to continue raising capital for their existing strategies, and 98 per cent of businesses plan to raise capital for some form of private credit strategy in 2021. According to Sanjeev Dhuna, a London-based Allen & Overy partner and head of the firm’s direct lending practice, direct lenders are increasingly being considered by borrowers and sponsors alongside underwritten and bank club financings. “The direct lenders offer speed of execution and certainty of pricing, and in recent months we have seen these lenders play in the structured financing market, offering liquidity for delayed exits in order to return cash to investors,” he commented and added: “the direct lenders are a staple part of the mid-market financing scene and they have an increased presence in the large cap market.” The paper, which surveyed 49 firms with an estimated private credit AuM of USD431 billion, notes that Covid-19 will highlight differences in origination, documentation standards and risk management within the sector.
Optimal Opportunities: Why Current Volatility Levels are Proving a “Sweet Spot” for Alpha-Focused Funds
Brief: Markets look set to remain in a “sweet spot” of heightened volatility – driven by Covid-19 uncertainty and the fallout from the US presidential election – offering a wealth of opportunities for alpha-focused strategies. New research by JP Morgan Asset Management shows that current above-average volatility levels offer an “optimal environment” for certain alpha-based funds to capitalise on mispricings amid choppy trading and high dispersion, in contrast with more mixed prospects for equity and credit beta exposures. The emerging investment landscape heading into 2021 offers a boon to a beleaguered hedge fund sector which in recent years has had to contend with patchy performances and continued investor aversion. Prevailing volatility levels - between 15 and the early 30s on the VIX – are creating particularly strong trading opportunities for relative value, quantitative, and macro-based strategies, which can tap into the increased dispersion across markets, explained Karim Leguel, international head of investment specialists for hedge funds and alternative credit solutions at JP Morgan Asset Management. “We see more dispersion coming up in terms of different stock dispersion and different stock behaviour, so that’s beneficial particularly for those strategies that trade short-to-medium dispersion between stocks,” Leguel told Hedgeweek.
2020: Covid-19 and Black Lives Matter Force Industry to Refocus Priorities
Brief: This year, Covid-19 and the Black Lives Matter movement have resulted in a refocus of priorities in the investment management industry, not just as businesses but also as responsible employers. This refocus is in line with the purpose and ethos of Investment20/20.With Covid-19, we are halfway through a second national lockdown in England, and well into the youth employment crisis. Recent research from the London School of Economics shows a staggering one in ten 16 to 25-year-olds have lost their job since the start of the pandemic - double the rate of those over 25 - and if that was not bad enough, 58% of young people have also experienced a fall in their earnings too compared with 42% across the rest of the working population. It is precisely because of this that the investment management industry must demonstrate to young people that their skills and perspectives are valuable to our industry. As the careers and talent solution for the investment management industry, Investment20/20 has not been immune to the impacts of Covid-19. To ensure our mission of building a diverse pipeline of talent for our industry was not knocked off course by the pandemic, we adapted quickly and innovated to a changing operating environment, both in March and more recently at the start of the new academic year in September.
