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Coronavirus Diligence Briefing

Our briefing for Monday November 9, 2020:

Nov 9, 2020 2:54:51 PM

  • In the United States, President Elect Joe Biden unveiled the members of his 12-person COVID-19 advisory board. The board includes Dr. Rick Bright, a vaccine expert and whistleblower who resigned from the Trump administration last month after earlier in the year being demoted to a lesser position after raising concerns about the Trump administration’s response to COVID-19 and nepotism within the Department of Health and Human Services. Another member of the panel is Dr. Michael Osterholm, a director for infectious disease research and policy at the University of Minnesota. Before President Elect Biden spoke on Monday, Dr. Osterholm said America is “about to enter COVID Hell.” The seven-day average for COVID-19 cases in America is over 108,700, a 33% increase compared to a week ago.
  • Canada, along with several other countries received some promising news on the vaccine front on Monday. COVID-19 vaccines being developed by American company Pfizer and Germany’s BioNTech have been found to be 90% effective in the final stage 3 trials – a breakthrough that could make the shots start to become available by the end of the year if drug authorities give them the green light. Speaking at a news conference on Monday, Prime Minister Justin Trudeau said if all goes well, the Pfizer vaccine should be available to Canadians sometime over the first three months of 2021. Canada already has placed orders for 20 million doses of the two-dose vaccine produced by Pfizer and German partner BioNTech.
  • In the United Kingdom, the government’s mass trial to test the entire population of Liverpool hit a bump on the road over its first weekend. The city of Liverpool has 500,000 residents and the government had asked anyone who lived or worked in the area to be tested by November 16th. As of 12 PM local time on Monday – 23,170 people were tested in six centres. Officials also sent out 14,000 postal tests.  That works out to under 8,000 people tested a day. The armed forces, who are running the trial, would need to process more than 67,000 tests a day for the next week to reach the November 16th target.  
  • Over the weekend, France announced three straight days of new single day coronavirus cases records – almost 87,000 of which were reported on Saturday. Prime Minister Jean Castex took to Twitter after visiting a hospital ward nearing capacity and stated the second wave in France has arrived brutally and violently. Prime Minister Castex urged citizens to respect new restrictions and limit their social contacts. As of Saturday, 87.2% of intensive-care capacity was occupied by patients infected with the virus. 
  • An IHS Markit survey found that Dubai’s private sector outgrew at its slowest pace in five months in October as post-lockdown third quarter economic recovery faltered. The survey which tracks business conditions, said positive sentiment in Dubai had fallen to its lowest level since the index began in 2012. David Owen, an economist at IHS Market noted the following for Dubai: “Businesses also showed weaker optimism towards the economic recovery from COVID-19, amid reports of weak demand and uncertainty about the future impact of the pandemic on activity and jobs.”
  • After reporting no new positive COVID-19 cases for over a week, residents of Melbourne, Australia will be allowed to travel freely to other areas of Victoria state. What was aptly named the “ring of steel” surrounding Melbourne during its almost four-month lockdown took transmission from a daily peak of 700 to no new cases over multiple consecutive days. Melbourne and Australia though suffered a substantial economic and social toll with one of the world’s strictest and longest lockdowns – the government estimated 1,200 jobs have been lost on average a day across Victoria state, while demand for mental health services surged more than 30%.

Covid-19 – Due Diligence And Asset Management

Hedge Funds Fend Off Election Uncertainty and Coronavirus Spikes to Finish October in Positive Territory

Brief: Hedge funds have notched up positive returns in recent weeks, positioning around the investment uncertainty surrounding the US presidential election and fresh Covid-19 lockdowns with gains inversely correlated to the sharp stock market declines seen at the end of October. New data from Hedge Fund Research shows the industry as a whole was up 0.4 per cent last month, which took the HFRI Fund Weighted Composite Index’s year-to-date performance to 1.2 per cent. As governments reimposed lockdowns in a bid to contain a renewed increase in coronavirus cases in many countries, HFR president Kenneth Heinz described October’s performance as “impressive”. Equity-based hedge fund managers added 0.90 per cent during October, which took the HFRI Equity Hedge Total Index’s year-to-date returns to 3.45 per cent.

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Lockdown Winners Fade as Reopen Trade Roars After Covid Data

Brief: Investors cashed out of companies that benefited from virus-induced lockdowns after promising results for a Covid-19 vaccine developed by Pfizer Inc. and BioNTech SE reawakened hopes that a return to normal is on the horizon. Zoom Video Communications Inc. plunged as much as 20%, the most on record, while Peloton Interactive Inc. dropped 25%, a record of its own, and Netflix Inc. dropped 9.2% as investors piled into risk assets and dumped shares of firms that have been winners during global lockdowns. The Nasdaq 100 edged higher but markedly underperformed other key gauges like the S&P 500. High-flying payment stocks PayPal Holdings Inc. and Square Inc. also sank. “The rotation that the market is doing is beyond any imagination with Nasdaq in negative territory and Russell 2000 in limit up,” said Alberto Tocchio, a portfolio manager at Kairos Partners. “We will continue to see some rotation out of “winners” into the laggards.” The preliminary results, which Pfizer’s chief executive called the most significant medical advance in the last century, dealt a blow to some of the lockdowns’ biggest winners as a push to reopen would mean less time on video chats and working out from home. Those expectations in turn lead to a roaring boom for companies that operate things like cruises, concerts, and hotels.

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KKR Sees Significant Philippines Investment Opportunities Amidst Pandemic

Brief: Global investment firm KKR continues to see the Philippines as an attractive market amid the global pandemic, citing the fundamental strength of the country’s economy as well as its young and dynamic population.  KKR believes the Philippines’ stable currency and strong level of foreign reserves, its focus on keeping inflation low, and the introduction of reform programs aimed at improving the investment climate are additional characteristics that drive the country’s attractiveness in the global arena. Since 2018, US-based KKR has invested over USD1 billion into the Philippines across four investments, starting with Voyager Innovations whose flagship product is digital payment platform PayMaya. KKR then invested into Metro Pacific Hospitals in December 2019 and First Gen in June 2020. This month, it invested into Pinnacle Towers, which aims to strengthen and expand the Philippines’ telecom infrastructure.  Ashish Shastry, co-head of Private Equity for KKR Asia Pacific & head of Southeast Asia, says: “We see significant opportunity in the Philippines and will continue to invest where we believe we can add value to companies and the economy.” While the Covid-19 pandemic has been challenging for investors across the globe with economies posting sharp declines in growth due to varying stages of shutdowns, Shastry said KKR is “a strong believer in the underlying Philippines’ growth story and not deterred by the short-term impact of Covid-19.”

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Financial Services Leaders Offer Gloomy Outlook as European Lockdowns Return

Brief: The continuing economic fallout stemming from Covid-19 restrictions has prompted financial services leaders to lower their revenue expectations for 2020 and prepare to cut operating budgets ahead of a challenging 2021, according to a new snap poll organised by Luxembourg for Finance. Following on a survey conducted in May 2020, Luxembourg’s development agency for the financial services industry, in October, asked nearly 400 senior or c-suite executives working at international financial services firms – including major banks, asset managers, insurers, and private equity firms – for their views on the macro economic situation. With one quarter of respondents seeing the operating environment becoming more volatile and major disruptions ahead, the results revealed that 60 per cent are now forecasting lower than expected revenues for the end of 2020, while 75 per cent of respondents expect to see no international investment growth in 2021, with 31 per cent even expecting a decrease. In one bright spot in their outlook, 55 per cent of respondents said they were “rather confident” about revenue growth next year, with a further 9 per cent purporting to be “absolutely confident”. This could however be linked to the fact that over half (56 per cent) plan to reduce their operating budgets for 2021.

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Blackstone’s Co-Head of Real Estate Describes the Post-Pandemic Office

Brief: Many offices now sit empty as many shops hang by a thread. Casinos, hotels, and amusement parks are fading into memory as consumers turn toward socially distant activities. So what does the future of real estate—and cities—look like? That’s the question Fortune posed to Blackstone Global Co-Head of Real Estate Kathleen McCarthy. Even before the pandemic, American malls were on the decline as e-commerce soared, and office spaces were being rejiggering to fit quirky amenities (ahem, beer taps and meditation rooms) common among top companies. The coronavirus, says McCarthy, may well mean that some malls and department stores turn into e-commerce centers, while office spaces undergo more renovation to include, say, better air filtration. Blackstone, known for its sprawling corporate real estate portfolio, has been remarkably resilient in the pandemic, a phenomenon it attributes to betting early on the rise of the technology and life sciences industries. Blackstone’s biggest real estate bets in recent years have featured warehouses rather than retail spaces: Last year, it acquired assets of Singaporean-based giant GLP for $18.7 billion and U.S.-based Colony Industrial for $5.9 billion. Those all sit within a group of assets it calls logistics, which now make up 36% of its real estate portfolio and is valued at about $90 billion including debt.

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New CAMRADATA Whitepaper Explores Emerging Markets Opportunities For Equity & Fixed Income Investors Post Covid-19

Brief: As countries worldwide rally financially to offset the economic effects of the Covid-19 crisis, CAMRADATA’s latest whitepaper on Emerging Markets focuses on the developing markets and considers opportunities in both the equity and fixed income arena of this dynamic region. The whitepaper includes insight from guests who attended a virtual roundtable hosted by CAMRADATA in September including representatives from Amundi Asset Management, Mackenzie Investments, Muzinich & Co, Aon, Blue Sky Pension Fund, Riscura and Willis Towers Watson. The report highlights that whilst the growth outlook may be uncertain in many emerging markets at present given the pandemic and the differing government and policy responses, there is a general consensus in the investment community that Asian countries have contained the virus better than many Western countries, with swifter implementation of lockdown measures, resulting in earlier recovery. Sean Thompson, Managing Director, CAMRADATA, says: “It is vital that, rather than lumping all emerging markets into a single monolithic group, investors recognise the varying responses in handling the coronavirus as this will translate into market performance. “Investors will also need to keep an eye on the US presidential election given the spill-over effects on emerging markets and limited capacity for further fiscal or monetary stimulus. But there are opportunities for investors in emerging markets.

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Contact Castle Hall to discuss due diligence

Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Topics:Coronaviruscovid-19