.png?width=200&height=78&name=CH%20Diligence%20(thicker%20line).png "CH Diligence (thicker line).png")
Our briefing for Monday July 6, 2020:
Jul 6, 2020 4:00:36 PM
- As the United States emerge from their 4th of July long weekend, New York state’s Governor is taking aim at the President of the United States saying Donald Trump is enabling the coronavirus. Governor Andrew Cuomo’s criticism comes after President Trump stated during a weekend address that 99% of the coronavirus cases are “totally harmless”. “What he’s saying to the American people is that there's no problem. And then they don’t wear a mask, and they don’t socially distance... “He is facilitating the virus. He is enabling the virus by [making] statements like that. And you're seeing the infection rate go up and you’re seeing the economy suffer,” said Cuomo.
- In Canada, Prime Minister Justin Trudeau is skipping an upcoming meeting in Washington D.C. with United States President Donald Trump and Mexico’s President Andres Manuel Lopez Obrador. The meeting would have highlighted a new North American Trade agreement that went into effect recently, but Prime Minister Trudeau cited coronavirus concerns and recent proposed tariffs on aluminum and steel that America has floated around recently for not wanting to attend. According to Canada’s public health rules if Prime Minister Trudeau were to attend the meeting in Washington, he would have to quarantine for two weeks upon return.
- The United Kingdom government have announced a £1.5bn funding package to the country’s performing arts and culture sectors, which have been crippled by the coronavirus pandemic. The plan will consist of £880 million in grants and supplemented by £270 million of loans. Many museums and galleries plan to reopen in the coming weeks, but like many industries will look much different upon return with physically distanced queues, time slots, one-way systems and mandatory mask-wearing.
- Spain have released the results from the final stage of a nationwide antibody study. It shows that 5.2% of Spain’s population had been exposed to the coronavirus. The more troubling part of the study suggests that immunity to COVID-19 appears short-lived with 14% of participants who test positive for antibodies in the first stage, subsequently tested negative in the last stage. The loss of antibodies was most common among asymptomatic patients. Spain’s study tested nearly 70,000 citizens three times over the past three months.
- According to local media reports, Israel Prime Minister Benjamin Netanyahu has told his cabinet they are one step away from a full lockdown. After a full reopening of its economy in May, Israel has now shutdown bars, gyms, swimming pools and cultural venues. The country has seen new daily infections cross the 1,000+ mark twice in the past week. The new shutdown measures also requires about a third of government employees to work from home.
- After Australia recorded its highest ever daily increase of new infections on Monday, the country is preparing to close the border between the country’s two largest states. As of late Tuesday, the border between New South Wales – home to Sydney and Victoria – home to Melbourne will be shutdown. Victoria Premier Daniel Andrews said 127 new cases were reported on Monday, which surpasses the peak of 111 cases suffered over three months ago.
- An open letter signed by 239 scientists has been sent to the World Health Organization (WHO) asking them to be more forthright in explaining how the coronavirus can transmit in the air. The group of international experts state the virus can float in air droplets and is likely transmitting that way. Health experts around the world have warned for months the virus can transmit in close contact in crowded spaces with poor ventilation. This likely explains the explosion of cases in the United States upon their reopening of bars and restaurants. The WHO’s current guideline says the coronavirus is transmitted primarily between people via respiratory droplets through the nose and mouth and close contact.
Covid-19 – Due Diligence And Asset Management
Junk-Bond ETF’s Shed $2.6 Billion With Treasuries Back in Vogue
Brief: The surge in coronavirus cases has bond ETF investors dumping their riskier holdings in favor of the safety of U.S. government debt. Over $2.6 billion exited from junk-bond exchange-traded funds last week, in addition to the $5.6 billion that fled from high-yield mutual funds. The $11 billion SPDR Bloomberg Barclays High Yield Bond ETF (JNK)’s $746 million outflow led the way, followed by a $609 million withdrawal from the $27 billion iShares iBoxx High Yield Corporate Bond ETF (HYG). On the other end of the risk spectrum, Treasury-focused funds were a clear beneficiary of the renewed haven demand. BlackRock Inc.’s $22 billion iShares 7-10 Year Treasury Bond ETF (IEF) posted a weekly inflow of over $2 billion -- the largest since January 2019 -- while the $4.2 billion SPDR Portfolio Intermediate Term Treasury ETF (SPTI) absorbed $1.8 billion. The rotation into higher-quality debt shows investors are taking a “pause for breath” as policy makers grapple with a balance between containing the spreading virus and resuming economic activity, according to Principal Global Investors. “In that environment, many investors would prefer to be out of riskier assets and find more solace in investment grade and sovereign debt, and will wait for a good opportunity to rebuild their risk positions at a better price,” said Seema Shah, Principal’s chief strategist.
BlackRock Favors Asia Markets Closely Tied to China’s Recovery
Brief: The world’s biggest asset manager is betting that some of the Asian markets that are closely tied to China’s recovery and have policy headroom will outperform peers over the next year. BlackRock Inc., which oversees $6.47 trillion in global assets, expects stocks and bonds in China, and its trading partners such as South Korea, Japan and Taiwan, will do better than global emerging markets over the next six to 12 months, according to Ben Powell, chief investment strategist for Asia Pacific at the firm. These countries have policy capability to do more if necessary and have a more direct exposure to the Chinese economy, which looks to be recovering quite well, Powell said in an interview. “Economies that are geared into that combination of policy, China’s recovery” and strong tech will do relatively better, he added. A variety of economic data out of the mainland have shown momentum of an economic rebound from coronavirus shutdowns. Profits of Chinese industrial enterprises rose in May for the first time since November while vehicle sales grew for a third straight month in June. That bodes well for China’s top trading partners in the region including Japan and Korea.
Credit Suisse Survey: Hedge Funds Now Top Choice Among Investors, as Appetite Soars in 2020
Brief: Hedge funds have emerged as the top pick among asset allocators heading into the second half of 2020, outflanking other products such as private equity and real estate as investors’ asset-class-of-choice, according to new data from Credit Suisse, which showed hedge funds have met or exceeded the expectations of some two-thirds of investors so far in 2020. The bank’s 2020 Mid-Year Hedge Fund Investor Survey – titled ‘Navigating Unchartered Waters’ – probed evolving allocator appetite, surveying some 160 institutional investors during May and June, collectively representing around USD450 billion in hedge fund investments globally. The wide-ranging study quizzed a broad mix of pension funds, endowments, family offices, insurers, funds of funds, advisors, consultants and more on their allocations, redemptions, and strategy appetite, among other things. The findings show that hedge funds are drawing the highest net demand among the various asset classes surveyed by Credit Suisse, with 32 per cent of investors set to increase their allocations to the product.
Banks Are Ditching London Offices and Not Just Because of Covid-19
Brief: The giants of Wall Street and European banking are giving up their stronghold on London. In the coming months alone, Barclays Plc may ditch its investment bank’s headquarters in the capital; Credit Suisse Group AG is offloading nine floors of office space; and Morgan Stanley is reviewing its entire London footprint. And all of those moves were planned before the coronavirus hit. Now, with thousands of job cuts likely to follow what’s forecast to be the worst recession in three centuries, the tenants of the glass and steel towers that dominate the City of London and Canary Wharf may face an even bigger retreat. “Larger banks are clearly a higher risk for landlords,” said Rogier Quirijns, head of European real estate at Cohen & Steers Inc., who oversees more than $2 billion of property funds. “For London, there are the threats of recession and a possible no-deal Brexit to deal with, and I expect Covid-19 will most likely accelerate those risks.” The pandemic has given banks further impetus to downsize and preserve cash after already spending a decade quietly offloading space as jobs vanished in the wake of the financial crisis. In the past nine years, their London footprint has been slashed by about six million square feet -- or the equivalent of a dozen Gherkin skyscrapers, according to broker CBRE Group Inc.
World Economy That Took Elevator Down Faces Steep Stairs Back Up
Brief: The world economy is entering the second half of 2020 still deeply weighed down by the coronavirus pandemic with a full recovery now ruled-out for this year and even a 2021 comeback dependent on a lot going right. It’s a scenario few if any predicted at the start of the year when most economists were banking on another year of expansion and a U.S. and China trade agreement was meant to give corporate and investor confidence a shot in the arm. Instead, the rare pandemic forced swathes of the global population into what the International Monetary Fund dubs ‘The Great Lockdown.’ Central banks and governments responded with trillions of dollars in unprecedented support to prevent markets from melting down and to keep furloughed workers and struggling companies afloat until the virus passed. Even with those rescue efforts, the world is still suffering its worst economic crisis since the Great Depression. While some gauges of manufacturing and retail sales in major economies are showing improvement, hopes for a V-shaped rebound have been shattered as the reopening of businesses looks shaky at best and job losses risk turning from temporary to permanent. It’s an economic trajectory Federal Reserve Bank of Richmond President Thomas Barkin has likened to riding the elevator down, but needing to take the stairs back up.
Money Laundering Enforcement Thrives In COVID-19 Era
Brief: While COVID-19 has made remote working a necessity for many government employees, it does not appear that COVID-19 has done anything to slow down government enforcement regarding money laundering.TheU.S. Securities and Exchange Commissionstated in its Office of Compliance Inspections and Examinations 2020 examination priorities,[1] that Bank Secrecy Act and anti-money laundering compliance remains a priority. Despite the COVID-19 pandemic, there have been significant actions by U.S. regulators this year against individuals and companies for money laundering activities, demonstrating a continued focus on AML enforcement. We expect that U.S. authorities will continue to make AML compliance, and specifically risk-based compliance, a priority.Recent AML compliance and enforcement efforts have taken account of the ongoing COVID-19 pandemic in some recent actions. In the last few months, the government has issued guidance on risks based on the COVID-19 pandemic from multiple enforcement agencies.TheFinancial Crimes Enforcement Networkissued guidance that provides institutions with some relief related to the administrative aspects of AML regulatory compliance, but does not excuse failures to take the required steps, and, indeed, puts institutions on notice of certain heightened money laundering risks associated with the COVID-19 pandemic.
