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Our briefing for Friday September 4, 2020:
Sep 4, 2020 4:03:17 PM
- In the United States, Democratic Presidential nominee Joe Biden held a news conference on Friday regarding the economy and President Donald Trump’s response to the pandemic. Biden took repeated jabs at the president, noting that while America added 1.4 million jobs in August, “Donald Trump may be the only president in modern history to leave office with fewer jobs than when he took office.” Biden also criticized the White House’s response to the COVID-19 pandemic, claiming they “botched” it, should have acted sooner, and have now left everyday people, such as teachers, afraid to do their job in fear of bringing home the virus to the people they love.
- As parents across Canada struggle with the idea of sending their children back to school, an Ontario Superior Court judge has made a precedent-setting ruling: don’t come to us. The court has ruled with the mother of a child who wants her son back in school, despite the objections of the father, who insisted the child take his classes online due to the COVID-19 pandemic. The presiding judge reminded parents there are other tools to resolve these disputes and they shouldn’t be tying up an already backlogged court system due to the pandemic. Other news in Canada on Friday included the country adding 246,000 jobs in August, pushing the unemployment rate down to 10.2%. The August number means almost two million jobs have been added to the economy since it started to reopen in May, but Canada still has 1.1 million fewer paid workers than it did in February.
- In the United Kingdom, the Office for National Statistics (ONS) noted half of the country’s workers returned to office in the last week of August, the highest number since lockdown measures were introduced in March. That number is expected to rise even more as people return to work next week – the first full work week following the summer holidays. The ONS’ latest survey should be encouraging news for Prime Minister Boris Johnson who was proclaiming earlier this week during a cabinet meeting that workers were returning to their offices in large numbers, but Downing Street officials struggled at the time to back up those claims with critical statistics.
- Spain, France, and Italy have all experienced their largest daily increase in COVID-19 cases in months. Authorities in Spain have reported 10,476 cases to their active total, 4,503 which were diagnosed in the last 24 hours – the highest daily total since early May. France reported close to 9,000 new COVID-19 infections in the past 24 hours, the largest daily increase since the outbreak began in the country. Despite, the record increase, France’s National Health Agency indicates the number of people hospitalized and in intensive care units remain stable. Finally, Italy has reported over 3,000 new cases in the past two days, with Friday’s numbers marking the largest increase since early May.
- A study published in the medical journal, The Lancet on Friday indicates Russia’s Sputnik V vaccine generated strong immune responses in 100% of the 76 participants without any “serious adverse effects”. The report from The Lancet is the first peer-reviewed study of the vaccine, which drew raised eyebrows from the Western world when Russia declared the COVID-19 drug good to go last month, despite limited clinical trials. Researchers have only begun phase three trials on more than 40,000 volunteers and it will be October or November before initial results are known.
- Australia’s Prime Minister Scott Morrison said he has the commitment from most state and territory leaders to reopen the country’s economy by December. However, the country’s leader is dealing with a fragmented population, falling along state lines and has yet to secure an immediate agreement to lift border restrictions. This is key to restart an economy dealing with its first recession in almost 30 years. The reopening of the economy was originally envisioned by the end of July but was complicated with the recent outbreak in Victoria state and city of Melbourne in particular. Seven out of eight state and territories are on board to reopen by Christmas, with the state of Western Australia being the lone holdout.
Covid-19 – Due Diligence And Asset Management
Covid Winners: These Funds Lured $22bn Amid the Virus Crisis
Brief: Fund managers have suffered heavy outflows since the onset of the Covid crisis, haemorrhaging tens of billions of dollars as the pandemic wreaks havoc on markets. But there are bright spots. Equity funds that make so-called "thematic" bets pulled in a net $22bn across Europe during the first six months of the year, according to data from Broadridge. Non-thematic funds posted outflows of $57bn in the first six months of the year across the region. Thematic funds invest around a specific theme or niche area of the market — think emerging technology, sustainability, healthy living or changing consumption. The Broadridge figures demonstrate how investors have been on the hunt for trends that will emerge stronger from the pandemic. “European investors are making this long-term bet,” said Kieran Kothari, a consultant in the global insights team at Broadridge. He said he's seen an acceleration in demand. “In an uncertain world, they have homed in on thematics for their potential to outperform global equities.”
Volatility “Most Definitely on the Menu”: Hedge Fund Industry Reacts to Thursday’s Shock Sell-Off
Brief: After global stock markets suffered their steepest sell-off since June, Hedgeweek rounds up a range of perspectives from across the hedge fund spectrum, gauging the broader impact of this week’s unexpected reversal and the potential for renewed market volatility up ahead. The sustained momentum in global equities that yielded positive returns for an assortment of hedge fund strategies in recent months came to an abrupt halt this week, with major US technology companies first in the firing line during the rapid reversal. The tech-dominated Nasdaq 100 took its biggest tumble since the historic Covid-19-driven crash back in March, slumping almost 5 per cent on Thursday. The S&P 500 slipped 3.5 per cent – its worst day in three months – and the Dow Jones fell 2.8 per cent, with the FTSE 100 meanwhile dropping 1.4 per cent. Stephen Crewe, a director at multi-strategy manager Fulcrum Asset Management in London, believes the sell-off appears to be predominantly US-centric, and likely to be short-lived. Observing the correlation between US growth and value indices, Crewe said the short-term correlation between returns had turned negative, a rare development which last happened back in 2000.
Billionaire Daniel Loeb Bets on Covid Vaccine Arriving This Year, Here’s What it Means for Your Equity Portfolios
Brief: Billionaire hedge fund titan Daniel Loeb is prepping clients for a potential coronavirus vaccine as soon as the end of 2020. "We have spent significant time with scientific experts to better understand evolving treatments and vaccines, and have confidence that several will be effective and available later this year," the hedge fund manager said in a 6 August investor letter seen by Financial News. Loeb said in the letter that a vaccine or medicine for Covid-19 "should lead to the next phase of market recovery in coronavirus‐affected companies." "Our equity portfolio is balanced between companies that are doing well now, and later-stage recovery names in aerospace, entertainment, and retail, which are still trading near their March lows and should benefit when there is a move back into these sectors." Loeb's comments came on 6 August, before the US government told states to prepare for a coronavirus vaccine to be ready to distribute by 1 November. The timing of the potential treatment raised concerns about the White House playing politics with the pandemic — the US presidential election is scheduled to be held two days later. After a rocky start to the year, Third Point has made smart bets in the last few months. The hedge fund swung to gains after the billionaire overhauled the portfolio, with the Third Point Offshore Fund posting gains of 4.4% for the year, after a jump of 8.4% last month, according to a performance update sent to clients on 31 August and seen by FN.
Domestic Investors Boost Real Estate Markets
Brief: Despite the devastating impact of the pandemic on economies around the globe, the real estate markets of Japan, Germany and South Korea showed resilience in the first half of this year as they leant on deep domestic pools of capital. As widespread lockdowns and travel restrictions stalled investors’ short-term capital deployment plans, commercial real estate investment fell 29 percent globally to US$321 billion in the first six months of 2020 compared to the year-earlier period, according to data from JLL. Yet, despite the widespread drop in investment, Japan, Germany and South Korea all outperformed the broader market in the first half of the year. In Japan, deal volume climbed seven percent to reach US$24 billion. Germany dropped a mere 1 percent, and, despite sliding 15 percent, South Korea outperformed its long-term, first-half average. “Countries that acted quickly and effectively to contain the spread thus far have generally been more resilient both in terms of domestic commerce and commercial real estate investment,” says Sean Coghlan, Head of Global Capital Markets Research, JLL. “Aside from rigorous efforts to contain the spread of the virus, these countries also benefitted from relatively high levels of market transparency, deep pools of domestic capital and strong government stimulus.”
PE Interest in Europe’s Telcos is Rising Due to COVID-19
Brief: After a dip in transactions in 2019, the coronavirus pandemic could see private equity companies target European telecom operators, experts told S&P Global Market Intelligence. As demand for telecom services increased during the pandemic, the industry offers cash flow visibility, as well as some potential bargains, the experts said. "Fixed networks gained importance as a utility during COVID-19," Hendrik Wiersma, a senior credit analyst who covers tech, media and telecoms at ING, said. "Private equity tends to target sectors with predictable cash flow generation with high margins." The rollout of fiber broadband in the region is also expected to encourage deals between carriers and private equity, they said. "These [fiber] deployment programs act as a lever for investment as they deploy a certain amount of capital with a relatively stable return — and if you get government funds that subsidize that, that is even better," Markus Muhs, a Clifford Chance partner specializing in cross-border M&A, said. In April, the German government announced two low-interest loans from its state-owned bank to support private and municipal companies building out fiber internet.
Allianz Investment Arm Sued Over $1B Loss From Virus Crash
Brief: Investors in a hedge fund that lost nearly $1 billion during the coronavirus-induced market crash earlier this year say "extreme risk taking" by fund manager Allianz Global Investors caused the fund to collapse in a proposed class action in New York federal court. A Teamsters Union retirement plan filed the suit Wednesday against AllianzGI, the investment management division of German financial services giant Allianz SE, alleging it abandoned its risk controls and meaningful downside hedging strategies for a fund purportedly designed to weather extreme market volatility. When U.S. equity markets experienced a crushing downturn in late February and March amid the COVID-19 pandemic, AllianzGI failed to take any meaningful steps to reduce the fund's risk and protect its investors, the complaint alleges. "AllianzGI's reckless throw of the dice in the late winter of 2020 — and its abject failure to meaningfully 're-balance' its 'market neutral' positions or acquire more than token hedge positions (despite having had plenty of time to do so) — proved to be a fool's bet and resulted in catastrophic losses of over 75% for the fund's investors," the suit claims. The complaint echoes claims made in other lawsuits filed over the summer related to losses from AllianzGI's "Structured Alpha" funds during market downturns related to COVID-19. Wednesday's suit deals with losses in Structured Alpha US Equity 500 LLC, an AllianzGI-managed hedge fund with the stated goal of outperforming the S&P 500 Index by 5% each year, net of fees and expenses.
