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Our briefing for Monday November 23, 2020:
Nov 23, 2020 3:30:41 PM
- In the United States, late last week the Centers for Disease Control and Prevention (CDC) asked Americans to think twice about travelling for Thanksgiving – it looks like not everyone is heeding that warning. Since Friday, 3.5 million Americans have travelled through United States airports, according to data from the US Transportation Security Administration. There have only been three days since the start of coronavirus lockdowns that air travellers in the country topped the one million mark and two of them occurred in the past three days. The silver lining, if there is one – the number of travellers who passed through airports on Sunday in the United States was less than half the number that travelled through the same time last year.
- Canada is experiencing its roughest stretch since the initial coronavirus lockdowns back in the spring. From west to east, it doesn’t seem to matter where you are at – the news isn’t good right now. Out west in Alberta over the weekend, the province had the highest number of daily cases in the country (1,584 on Sunday) even though they have three times less of a population than Ontario (1,534 cases) and two times less than Quebec (1,154 cases). In Ontario, the country’s largest city Toronto, along with neighbouring Peel Region are officially back in lockdown as of Monday for at least the next 28 days. Even in Atlantic Canada, where the travel bubble has been largely successful, succumbed to the pandemic as cases have risen in New Brunswick and Nova Scotia. Prince Edward Island and Newfoundland and Labrador “popped” the Atlantic bubble on Monday, which has been in place since early July, for at least the next two weeks, and likely longer.
- In the United Kingdom, Prime Minister Boris Johnson has confirmed England’s “stay at home” national lockdown will come to an end on December 2nd. Coming out of the country’s second lockdown though, a new toughened tier system will await Britons. Prime Minister Johnson on Monday set out his new winter plan, which will require MPs’ approval, and will see the reopening of non-essential shops in time for the busy Christmas rush. The tougher rules focus on the hospitality industry as pubs and restaurants in the worst affected areas will remain closed, except for take-out orders. Gyms and outdoor sports venues will also be allowed to open again on December 2nd and “rule of six” will return for people meeting outside in public spaces.
- In attempt to recuperate from the coronavirus pandemic, the United Arab Emirates (UAB) announced via its state-run media that the region has relaxed and removed a range of limits on foreign ownership of companies. The move is coupled with a series of reforms to its Islamic legal code earlier this month, which will now allow unmarried couples to live together, improved protections for women, and loosening restrictions on alcohol consumption. All of these moves are seen as an attempt to draw in Israelis from a recently brokered deal between the two nations and other foreign ownership as the UAE, especially Dubai, has seen its economy battered by COVID-19 since it relies heavily on the tourism, hospitality and aviation industries.
- In the Philippines, the government will offer tax breaks to manufacturers of medicine, medical equipment and personal protective equipment, such as face masks, which have now become essential during the coronavirus pandemic. Companies that produce these kinds of goods may be exempt from paying income tax for as long as six years. Investment in activities that will create jobs away from congested city areas such as Manila, may also qualify for fiscal perks, according to the government plan.
- Singapore and Hong Kong have suffered a setback in the world’s first quarantine-free travel bubble. The plan has been pushed back for two weeks after a surge of new coronavirus infections in Hong Kong made the move too risky for the time being. The two governments delayed the inaugural flights, which were supposed to start Sunday. The decision seemed to be made last minute with Singapore stating as late as Saturday that the travel bubble would go ahead as planned, before walking back the statement later that same day. Under the current terms of the agreement, travel between Singapore and Hong Kong becomes suspended for two weeks if the seven-day moving average of unlinked cases rises to five in either city. Hong Kong’s rose to 3.9 on Saturday while Singapore hasn’t reported any local transmissions since November 10th.
Covid-19 – Due Diligence And Asset Management
BlackRock Says Buy U.S. Stocks, Looking Past Covid-19 Surge
Brief: Despite the surge in Covid-19 cases, investors should look past near-term market volatility and buy U.S. stocks, BlackRock Investment Institute said, raising its recommendation to a buy-equivalent rating. “We upgrade U.S. equities to overweight, expecting this market to benefit from both structural growth trends and a potential cyclical upswing during 2021,” said Mike Pyle, global chief investment strategist at BlackRock, in a report published Monday. “Positive vaccine news reinforces our outlook for an accelerated restart during 2021, reducing risks of permanent economic scarring.” Large-cap companies riding structural growth trends and smaller companies geared to a potential cyclical upswing are preferred investment opportunities, Pyle said. He added that the U.S. stock market has a “higher share of quality companies” in sectors with longer-term growth trends, like technology and health care. Investors have honed in on promising progress with Covid-19 vaccines, brushing past rising coronavirus infections across the world that have led to more lockdowns across North America and Europe. The S&P 500 Index is up about 10% this year and is on pace for a 9% gain this month alone.
Hedge Fund Managers Look to Outsource Work Amidst Covid Pandemic
Brief: Hedge funds that had seen their operational models being disrupted due to Covid pandemic have been relying on outsourcing part of their work to achieve greater efficiency. Many hedge fund managers that saw most of the executives being stranded at home due to the pandemic have been exploring the outsourcing model, especially some part of their work. As per a survey by KPMG, more than 70% of the hedge funds said that outsourcing part of their work may actually be more efficient. An overwhelming 71 percent of respondents agree that the current experience of working remotely has convinced them they could achieve better cost efficiencies if they outsource some of their operations. Approximately one-in-five firms say their outsourcing decision is being influenced by employee health concerns related to returning their own people to the office environment, the KPMG report said. “Many firms also point towards potential cost and business agility benefits of outsourcing. One-in-five firms admit they are moving towards outsourcing additional functions to better manage margin pressures. As one North American manager sensibly noted, “those that get the balance to outsourcing right will be able to scale their costs both during this disruption and going forward,” KPMG report said.
Fund Managers Hate Working From Home as Much as the Rest of Us
Brief: Mary Erdoes, who runs asset and wealth management at JPMorgan Chase & Co., reckons fund managers are one of the few groups of finance professionals who’ve benefited from the pandemic, given they’ve had more “thinking time” while forced to work from home. “Of all sectors that I think will come back to work in the office fastest, I would put asset management at the end of the list,” she said earlier this month. Many portfolio managers would beg to differ. The lack of interaction with colleagues focused on different asset classes, the increased difficulty of getting trades done, and the risk of junior staffers missing out on day-to-day instruction all make investment professionals as keen as others to get back to their office desks. “I want to go back,” says Chris Bowie, who helps oversee more than $25 billion at TwentyFour Asset Management in London. “I think the lack of a commute does allow more time to read and think, but you lose the over-the-desk ad-hoc interaction, which, in my experience, often leads to bigger discussions on themes and then asset allocation.” That interplay with teams across asset classes is a valuable source of investment insight that’s difficult to replicate, says Jamie Stuttard, head of global macro fixed income at Robeco Group, which manages more than $180 billion. Although lockdown has in some cases improved connections within teams, the cross-pollination of ideas has taken a big hit. “The casual ‘coffee machine’ interaction is gone,” he says.
Delta CEO Says New York-London Travel Corridor ‘Complicated’, as Airlines Aim to Revive Transatlantic Travel
Brief: Delta Air Lines CEO Ed Bastian said Sunday that the New York-London travel corridor will be "complicated" due to coronavirus restrictions, as airlines look to revive transatlantic travel. Bastian said that it would be easier to reopen a route to almost any other European city than London, citing the quarantine requirements in the U.K. as well as the lack of reliance on tourism. “I think you will find on the continent several countries that are more open,” Bastian told the Financial Times, adding, “I think New York-London is complicated.” Domestic flights in the U.S. have revived faster than international travel, with Thanksgiving to see a bump – though, Bastian projects that flight volume would be around 35%-40% of last year’s level. That suppressed level could continue throughout Christmas and the new year because of the recent surge in coronavirus cases seen in most states across the U.S. Airlines have attempted a number of pilot programs to develop better safety and confidence in air travel amid the pandemic: United Airlines converted its United Club inside Newark airport into an on-site testing facility, intending to test passengers before the flight departs. United touted the four-week test run as “a good proof-of-concept for governments around the world,” but no one has yet jumped to replicate it.
Blackstone Seeking at Least $5 Billion for Second Asia Fund
Brief: Blackstone Group Inc. is doubling down on Asia, seeking to raise at least $5 billion for its second private equity fund focused on the region, people familiar with the matter said. The U.S. investment firm has started marketing the new vehicle to potential investors, according to the people, who asked not to be identified because the information is private. It’s targeting more than double the size of its first Asia buyout fund, which closed at about $2.3 billion in 2018. Blackstone is raising ever-larger pools of capital as dislocations from the coronavirus pandemic offer up more deal opportunities. President Jon Gray has vowed to increase the proportion of Asian investment in its total business, which stood at just under 10% two years ago. In 2018, it raised $7.1 billion for Asia real estate investments. The firm joins KKR & Co., which is in the process of raising at least $12.5 billion for its next Asia fund. TPG, Warburg Pincus and Baring Private Equity Asia raised larger amounts of money earmarked for investment in the region, totaling $15 billion since early 2019.
Private Equity Mega Funds Land Half the Industry’s Dry Powder
Brief: Private equity is flush with even more cash waiting to be invested than before the pandemic shut down large swaths of the economy. Buyout funds had $853 billion in dry powder as of the third quarter, with more than half of that in the industry’s largest funds, according to Ernst & Young’s third-quarter report on private equity trends. Funds that were specifically set up to invest in distressed deals had $140 billion, or 15 percent more to work with than they did at the beginning of the year. Total funds raised in 2020 through the third quarter have decreased by 19 percent, to $524 billion, with the absolute number of funds falling by 28 percent from the same time last year. But that’s still in line with fundraising trends over the past five years, according to EY. With most communication still happening through Zoom or Microsoft Teams, investors are handing more money to the funds they already know. That means the average fund size grew by 9 percent as of the third quarter. As a result, smaller funds without well-known brand names need to figure out how to get in front of investors. The star-studded list of mega funds includes CVC Capital Partners’ $24 billion buyout fund and Brookfield's $20 billion infrastructure product. Investors also handed over $18 billion to Silver Lake Partners for another buyout fund. There were also surprises along the way. When markets cratered beginning in March, industry observers were concerned that investors would fail to make their capital commitments to private equity funds.
