Coronavirus Diligence Briefing

• In the United Kingdom, lots of words are being used to describe the country’s decision to approve the Pfizer vaccine for public use, but humility might not be one of them. Appearing on LBC Radio on Thursday, Education Secretary Gavin Williamson said the following: “We’ve got the very best people in this country and we’ve obviously got the best medical regulator, much better than the French have, much better than the Belgians have, much better than the Americans have. That doesn’t surprise me at all because we’re a much better country than every single one of them.” Prime Minister Boris Johnson’s office backed Williamson’s statement, saying the minister has a right to be “proud” of the UK. The comments come after Business Secretary Alok Sharma and Germany’s ambassador in London had a squabble since the Pfizer-BioNTech vaccine was produced in America and Germany, but Sharma said it was a sign that “the UK led humanity’s charge against this disease.” 
  
  
• The United States suffered their deadliest day from the coronavirus pandemic on Wednesday with more than 2,800 succumbing to the disease. The number of COVID-19 patients in American hospitals sits at just over 100,000 people as of Wednesday – another record. Health officials are predicting by this time next week there will be 3,000 deaths due to COVID-19 a day in the United States. The mayor of Los Angeles, Eric Garcetti has said the city will run out of hospital beds by Christmas and a modified stay-at-home order for Los Angeles county will begin next week. Mayor Garcetti called on residents to “hunker down” and “cancel everything” to help stop the spread.
  
  
• In Canada, the province of Quebec has reversed its decision on holiday gatherings in red zones – citing a worrisome trend in the number of COVID-19 cases. In a news conference on Thursday, flanked by his health minister, Premier Legault said “when we look at the situation, we are forced to realize that it is not realistic to think that we are going to succeed in reducing the progression of the virus in a satisfactory way by Christmas.”  The only exception will be for people who live alone – they will be allowed one visitor at a time. The province had previously given the green light to holiday gatherings in red zones with up to 10 people gathering between December 24^th and December 27^th, and then later clarifying that only two gatherings would be allowed within that time frame.
  
  
• Germany will extend its partial lockdown into early 2021 as the country struggles to regain control of the coronavirus spread. After meeting with the premiers of Germany’s 16 states, Chancellor Angela Merkel said bars, gyms and cinemas will remain close until January 10^th. The central government will reconvene with regional leaders on January 4^th to reassess the restrictions. According to data from Johns Hopkins University, total infections have more than doubled in Germany since the restrictions started.
  
  
• Speaking during a news conference on Thursday, French Prime Minister Jean Castex said the country will start COVID-19 vaccinations in early 2021. France’s inoculation strategy will have three phases. Starting in January, one million citizens will be vaccinated, beginning with elderly people in care homes and some staff in those establishments. The next phase will last from February until the spring - at risk citizens due to health, or age, along with certain healthcare professionals will receive their shot. The final stage will be to vaccinate the rest of the population. The prime minister said thanks to the contracts signed at the European Union level, France could potentially have access to enough doses to vaccinate 100 million people, which will be more than enough as the population of the country sits at approximately 66 million. 
  
  
• Australia’s economy rebounded sharply in the third quarter from a coronavirus-induced recession. As the country largely were able to get COVID-19 under control in the September quarter, the outbreak in Victoria state notwithstanding, the economy expanded by 3.3%. That jump was larger than what experts expected and signifyingly better than the 7% contraction the Australian economy experienced in June. Economic growth is expected to be positive in December as well, but Australia still has the elephant in the room that is China. The two countries continue to have escalating tensions and China has been Australia’s top trading partner.

Covid-19 – Due Diligence And Asset Management

Paul Tudor Jones Sees ‘Massive Boom’ After COVID-19 Vaccine Gets Released

Brief: Legendary macro hedge fund manager Paul Tudor Jones expects "an explosion" of economic growth next year as a coronavirus vaccine becomes more widely available. As the federal government moves quickly to approve and distribute experimental inoculations from Pfizer (PFE)-BioNTech (BNTE) and Moderna (MRNA), Wall Street’s becoming increasingly bullish on 2021. Reflecting that mood, the CIO and founder of Tudor Investment Corp., expects risk appetite to rebound even further, especially with Congress and the Federal Reserve pumping more stimulus. "I think the stock market's on a combination of fiscal monetary pulse that we've never seen before in history, nothing like this,” Jones told Yahoo Finance in an exclusive interview on Wednesday. For that reason, stock multiples are frothier than in the year 2000, when the tech bubble sent the Nasdaq to its first historic high. And he anticipates a COVID-19 vaccine will jumpstart economic growth, which may have potential political implications. "The vaccine's going to bring us back. We're going to have an incredible growth rebound,” the investor predicted, as pent-up demand from the last year gets carried forward in a big way.

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Sustainable Allocations to Double in Next Five Years, Finds BlackRock

Brief : Investors plan to double their allocations to sustainable products over the next five years, according to BlackRock’s Global Client Sustainable Investing Survey, which finds that the pandemic has accelerated investor demand. One fifth of those surveyed said that the pandemic would actually accelerate their sustainable investing allocations. “The tectonic shift we identified earlier this year has really taken hold, as the convergence of political and regulatory pressures, technological advancements and client preferences have pushed sustainability into the mainstream of investing,” says Mark McCombe, chief client officer at BlackRock. “The results of our survey show this sustainable transition is occurring all around the world.” The survey gathered insights from 425 investors in 27 countries, including corporate and public pension plans, asset managers, endowments, foundations, and global wealth managers with nearly USD25 trillion in assets under management (AUM). The survey suggests this is the beginning of a sustained shift for at least the next five years, with survey respondents planning to double their Environmental, Social and Governance (ESG) assets under management (AUM) by 2025. While growth in sustainable assets is most pronounced in Europe, it is also growing in prominence in the Americas and Asia-Pacific as well.

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Brief: Investors piled back into value stocks as November’s twin breakthroughs in the search for an effective vaccine against Covid-19, by Pfizer/BioNTech and Moderna, renewed optimism and prompted a huge rally in global markets. Value investing has been out of favour this year as the strategy typically favours companies that are more sensitive to economic cycles, such as energy companies and banks.  A turnaround in November saw the Russell 1000 Value Index rise by 13.2 per cent, outperforming the Russell 1000 Growth Index, which only registered a 10.1 per cent rise over the month. The year 2021 has already been named “the year of the vaccine” by Bank of America in its monthly survey in November, and the bank says it expects value stocks to outperform growth stocks, and for small-cap stocks to beat large-cap stocks over the year. Ian Lance, co-portfolio manager of Temple Bar Investment Trust, and portfolio manager at RWC Partners, believes that a vaccine could be “the catalyst” for a sustained move toward value investing. “As the Pfizer vaccine receives UK regulatory approval, and with it the promise of return to a somewhat normal life, now may be the signal many investors have been waiting for to re-allocate away from growth to value,” says Lance.

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AI Gets Left Behind as Asset Managers Focus on Remote Working Tech

Brief: Asset management firms are putting technology upgrades in artificial intelligence and automation aside to beef up tech related to remote working, according to a recent survey by consulting firm Deloitte. The survey, conducted in August as part of the firm’s annual investment management outlook, found that asset managers in North America, Europe, and Asia planned to increase spending in areas like data privacy and cybersecurity, which are seen as critical for allowing employees to work from different locations. “Not surprisingly, this indicates that investment management firms are spending in part to support remote and distributed working arrangements brought about by the pandemic,” Deloitte said in the report, expected to be released Thursday. On a net basis, 54 percent of North American firms planned to spend more on data privacy in the coming year, versus 23 percent of European respondents and 36 percent of Asia-Pacific firms. For the latter regions, cybersecurity was seen as the biggest priority, cited by a net 42 percent of European firms and 53 percent of Asia-Pacific respondents. A net 46 percent of North American firms also reported a higher budget for cybersecurity over the next 12 months.

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European CLOs Suffer in COVID-19 Era

Brief: The impact of COVID-19 on the European leveraged loan market fed through to collateralized loan obligations, with defaults up and loan supply down. A report by S&P Global Ratings said the CLO market was "hit hard by the pandemic." Defaults and CCC-rated asset holdings were up, loan supply fell and CLO managers that chose to trade out of weaker corporate sectors in some cases have experienced par losses, the report said. "All combined, these factors have negatively affected European CLO ratings, largely in the form of CreditWatch negative placements and downgrades of junior tranches," it said. The ratings agency uses CreditWatch and rating outlooks to show its view on how likely a ratings change is and the probable direction of such a change. Since March, S&P has put 39 European CLO ratings on CreditWatch negative, with about two-thirds of those actions subsequently resoled with a downgrade. The average downgrade was one ratings notch. As of Dec. 1, no European CLO ratings were on CreditWatch negative. Pressure on European CLO ratings was predominantly seen in junior parts of the capital structure, at the BB and B-rating levels. S&P's report also noted that moves by managers away from affected names and potential losses — along with "structural mitigants embedded in CLOs — explain why our rating actions on junior CLO tranches have been limited so far. On average, the magnitude of rating changes has been one notch, and to date we have not lowered any investment-grade ratings to speculative-grade."

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