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Our briefing for Monday September 14, 2020:
Sep 14, 2020 3:21:41 PM
- In the United States, President Donald Trump is facing backlash from his first indoor campaign rally since June. President Trump held the rally in Nevada, which is a state run by a democratic governor and he wasn’t happy with the federal government’s defiance of his state restrictions on large events, which sits at no more than 50 people. Governor Steve Sisolak said the president, “blatantly disregarded the emergency directives and tough choices made to fight this pandemic… This is an insult to every Nevadan who has followed the directives, made sacrifices, and put their neighbours before themselves…” The government rejected the governor’s attacks stating, “if you can join tens of thousands protesting in the streets, gamble in a casino, or burn down small businesses in riots, you can gather peacefully under the first amendment to hear from the president.”
- In Canada, Prime Minister Justin Trudeau is urging Canadians to be vigilant in following public health guidelines as COVID-19 cases continue to climb in its two most populous provinces. Speaking before a two-day cabinet retreat, Prime Minister Trudeau stated, “the last thing anyone wants is to go into this fall in a lockdown similar to this spring, and the way we do that is by remaining vigilant.” Ontario is reporting 313 news cases of COVID-19 on Monday – the highest daily count since early June. Meanwhile Quebec finds itself in a similar predicament seeing over 500 cases over the weekend, and its most in one day since the beginning of June.
- In the United Kingdom, after experiencing a setback in COVID-19 vaccine trials, the team of Oxford University and AstraZeneca are set to resume their work. A rapid review by the trial’s independent safety review committee and national regulators have concluded that is safe to resume inoculating new participants. So far, 18,000 individuals have taken part in the vaccine trials, which are taking place in the UK, United States, South Africa and Brazil.
- Israel will be moving ahead with its second major lockdown after Prime Minister Benjamin Netanyahu made the announcement on Sunday. The timing isn’t the greatest either as starting this Friday, the beginning of the Jewish High Holiday season, schools, restaurants, malls and hotels will shut down. Israelis will also face restrictions on movement and gatherings. “Our goal is to stop the increase (in cases) and lower morbidity,” said Netanyahu in a national broadcast statement. “I know that these steps come at a difficult price for all of us. This is not the holiday we are used to.”
- In the Middle East, Saudi Arabia will start easing coronavirus-imposed movement restrictions on Tuesday. The kingdom plans to end all restrictions on travel by land, air and sea by January 2021. For the time being, exempted groups including employees in the public sector, military personnel, diplomats and their families are some of those that can travel. In Dubai, government officials have closed several establishments for ignoring regulations as the area sees a surge in cases. Authorities have warned residents to follow regulations, such as wearing a face mask, as most infections have occurred through gathering. The United Arab Emirates reported a record 1,007 cases on Saturday.
- The government in the Philippines are making a move to allow more passengers in public transport by gradually easing the one-metre social distancing rule. A group of medical frontline workers in the country have said it’s still too early to ease the distancing guidelines as the Philippines continue to have the highest number of infections in Southeast Asia with over 261,000 cases. Elsewhere in the country, President Rodrigo Duterte vowed to prioritize buying potential COVID-19 vaccines from Russia, or China, while also taking a shot at western nations. President Duterte said “the one good thing about China is you do not have to beg, you do not have to plead. One thing wrong about the western countries, it’s all profit, profit, profit.”
Covid-19 – Due Diligence And Asset Management
A Wall Street Giant Tapped $1.5 Billion in Federal Aid for its Hospitals
Brief: Like hospital chains across the U.S., LifePoint Health tapped federal relief money to blunt the cost of the Covid-19 pandemic. It was a potent lifeline, a total of $1.5 billion. But LifePoint is unusual in one respect, its owner: private equity firm Apollo Global Management, led by billionaire Leon Black. LifePoint was certainly eligible for the money. But the extent of the federal assistance could contribute to concern in Washington over whether private equity-backed hospitals should have been. In July, the U.S. House passed a bill that would require health-care companies to disclose any private equity backing when seeking short-term loans from the federal Medicare program. The reason for lawmakers’ concern: Private equity firms have ample access to cash. As recently as June, the Apollo fund that owns LifePoint had more than $2 billion to support its investments. Apollo, which manages $414 billion, recently told investors in an internal document that LifePoint was in such a strong market position that it was planning to make acquisitions of less fortunate hospitals. The relief flowing to LifePoint illustrates a drawback of a government program designed to send out money quickly to every hospital, regardless of financial circumstances, according to Gerard Anderson, a health policy professor at Johns Hopkins University.
At JPMorgan, Productivity Falls for Younger Employees at Home
Brief: A troubling pattern emerged as most of JPMorgan Chase & Co.’s employees worked from home to stem the spread of Covid-19: productivity slipped. Work output by younger employees was particularly affected on Mondays and Fridays, according to findings discussed by Chief Executive Office Jamie Dimon in a private meeting with Keefe, Bruyette & Woods analysts. That, along with worries that remote work is no substitute for organic interaction, are part of why the biggest U.S. bank is urging more workers to return to offices over the coming weeks. “The WFH lifestyle seems to have impacted younger employees, and overall productivity and ‘creative combustion’ has taken a hit,” KBW’s Brian Kleinhanzl wrote in a Sept. 13 note to clients, citing an earlier meeting with Dimon. A JPMorgan representative didn’t immediately respond to a request for comment. JPMorgan’s findings provide a data point in the debate over whether employees perform as well at the kitchen table as they do in the workplace, showing extended remote work may not be all it’s cracked up to be, at least for some job functions. While pre-pandemic studies found remote workers were just as efficient as those in offices, there were questions about how employees would perform under compulsory lockdowns.
The Signals Coming From the Emerging Markets Petri Dish
Brief: Even though U.S. stocks are behaving like government stimulus will go on forever and Covid-19 will vanish shortly, emerging markets are giving investors a taste of what could happen when the world ultimately normalizes. One notable trend is that value stocks in emerging markets have finally stabilized. Value stocks have underperformed for years, setting off a frenzied debate on whether or not the investing style still works. “It seems that emerging markets are behaving defensively. Low vol is doing well and value stocks are not declining. Perhaps this is because emerging markets don't expect a big stimulus to artificially keep them going through a second Covid wave and therefore have to rely on normal market dynamics,” wrote Damian Handzy, Style Analytics’ head of research and chief commercial officer, in the firm’s most recent analysis of factor performance. In the paper published on Monday, the research firm found that August was the first month since the crash in March that Europe, the emerging markets, and the U.S. have diverged from one another.
Doomsday Real-Estate Bets Rejected by $40 Billion Swedish Fund
Brief: The woman running one of Sweden’s biggest pension funds says the Covid crisis has done less damage to property markets than some feared. That’s why Kristin Magnusson Bernard, the chief executive of Sweden’s $40 billion AP1 fund, is “heavily exposed” to prime real estate in city centers. Magnusson Bernard says she and her team in Stockholm “have thought a lot about what a world with less demand for office spaces would mean for us.” Though it’s clear “the sector will see some adjustments,” she said, “We don’t believe in any systemic meltdown in the real estate market. That is not our view.” At the end of June, AP1’s real estate exposure was close to $6 billion, or almost 15% of the total portfolio. The return over the first six months of the year was 1.1%, making real estate one of the better performing major asset classes that AP1 invests in. Overall, the fund lost 1.8% in the first half, after costs. A recent study by Norwegian bank DNB found that working from home is likely to be considerably more widespread after the Covid-19 crisis than it was before. The survey, which focused on Norway and Sweden, showed that 28% of office tenants expect to continue working from home, more than double the pre-crisis level. AP1 holds key stakes in some of the Nordic region’s biggest property managers and developers, such as Vasakronan AB. “We are heavily exposed to that type of prime locations in city centers,” Magnusson Bernard said.
Bank of America Adopts AI, Finds ‘More Significant Credit Stresses’ From Covid-19
Brief: Bank of America Corp. has begun using artificial intelligence to predict the likelihood of companies defaulting on loans. “Today we present our inaugural work on applying the latest machine learning tools to analyzing the credit risk,” Bank of America credit strategists Oleg Melentyev and Eric Yu and head of predictive analytics Toby Wade said in a research note Friday. They have started using natural language processing to digest earnings-calls transcripts in order to estimate companies’ probability of default over the next 12 months. In expanding their default model with the help of AI, the credit strategists seek to detect language used by chief executive officers and chief financial officers that signals a company’s high likelihood of default. Phrases that link to defaulting include cost cutting, asset sales, and cash burn, they said. Natural language processing has pointed to “more significant credit stresses” in sectors exposed to Covid-19 than under Bank of America’s existing default framework, according to the note. For example, the machine-learning technology predicts default rates will be higher in energy, transportation, and media, and lower than estimated in the cable and health-care sectors.
Africa’s Gathering Debt Storm
Brief: The Covid-19 crisis is pushing Africa to the financial brink. African governments are under pressure to continue servicing their external loans, leaving them with few resources to confront a historic pandemic and its economic fallout. Without external support – specifically, a comprehensive repayment freeze – some African economies will buckle under their debt burden. The resulting domino effect could imperil the entire continent’s development and harm richer countries, too. The international community’s response so far has been mixed. The most notable step so far – the G20’s Debt Service Suspension Initiative (DSSI) for the world’s poorest countries – covers only official bilateral debt. But 61% of African DSSI countries’ debt-service payments this year will go to private creditors, bondholders, and multilateral lenders like the World Bank. And, despite the G20’s assurances, some countries joining the DSSI were subsequently downgraded by global ratings agencies. The World Bank has played an unhelpful role here. Although its president, David Malpass, recently called for expanded debt relief and even raised the possibility of a write-off, he has also resisted calls for the Bank itself (a major lender to Africa) to freeze debt repayments. Instead, the US-dominated institution seems more interested in scoring political points by urging the China Development Bank to join the G20 initiative, even though doing so would really affect only one African country.
