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Coronavirus Diligence Briefing

Our briefing for Thursday June 10, 2021:

Jun 10, 2021 3:16:53 PM

  • United States President Joe Biden was expected to meet for the first time with United Kingdom Prime Minister Boris Johnson on Thursday ahead of the G7 Summit where both sides are looking to commit to resume travel between the two countries. According to figures released by Prime Minister Johnson’s office, before the coronavirus pandemic, more than 5 million Britons visited the United States every year and over 4.5 million Americans crossed the pond to visit the UK. While both sides are looking to commit, President Biden’s national security adviser, Jake Sullivan downplayed the chances of travel opening up soon. “I don’t think the working groups will finish their work by the time the trip is through so we’re not currently anticipating any specific announcements,” Sullivan told reporters. 
  • In Canada, fresh off the government’s announcement that fully vaccinated Canadians and permanent residents crossing the border into country will soon no longer be required to stay at a hotel for part of their quarantine period, experts are saying more clarity is needed. Some experts point to the United States Centers for Disease Control and Prevention (CDC), releasing guidelines in March for fully vaccinated Americans. Canada’s public health authority still haven’t provided similar guidelines, despite saying over a month ago the guidance was coming “very shortly”. “If you don’t provide guidance, people are going to make it up on their own. Some people might obviously throw caution to the wind and others might still be, quite frankly, unnecessarily cooped up,” said Dr. Isaac Bogoch, an infectious disease physician at Toronto General Hospital and member of Ontario’s COVID-19 task force.
  • In the United Kingdom, Prime Minister Boris Johnson said nations of the world must set aside the “beggar my neighbour” attitude that has led to disagreements over medicine, medical protective gear and COVID-19 vaccines. Speaking at the G-7 Summit as the host, Prime Minister Johnson said the group of leaders will commit to vaccinating the world by the end of 2022. The prime minister wrote in The Times of London that it was time for wealthy countries to “shoulder the responsibilities and to vaccinate the world, because no one can be properly protected until everyone has been protected.” The UK needs to back up those words with action of their own as the country has yet to send any doses abroad and has cut its international aid budget, citing the economic blow of the pandemic.
  • The European Union (EU)’s parliament announced its authorization of the use of digital COVID certificates within the EU, saying it is now up to member states to apply the rules. The measures are set to come into effect as of July 1st and will last for 12 months. The proposed digital certificates are supposed to enable secure travel between EU countries by validating whether someone has been fully vaccinated, has recently tested negative for the virus, or has fully recovered from the disease. The EU parliament website noted 23 countries are “technically ready”, with 9 of those already applying some form of validation certificate. 
  • In Japan, Prime Minister Yoshihide Suga made the bold declaration that all residents wishing to be vaccinated, will be able to by November. The timing of the prime minister’s statement coincides with a snap election that must be held by late October, essentially pushing his chips to the middle of the table and going all-in on vaccines delivering success to his administration. Japan’s vaccination effort has picked up speed recently, but Prime Minister Suga’s government has received criticism for its initial slow rollout to the world’s third largest economy.
  • Australia’s acting Victoria state premier has praised the residents of Melbourne and announced the country’s second largest city can exit their lockdown as of Thursday night. Melbourne’s five million residents have had to remain home for all but essential reasons for the past two weeks after a cluster of cases were linked to the Delta variant of the coronavirus, which is thought to be more transmissible. “This is a good day. Everyone should be absolutely proud of what we all achieved together,” said Victoria state acting Premier James Merlino. Even when the rules are eased, Melbourne residents are expected to remain within 25 KM (15 miles) of their homes, along with mandatory masks indoors and other restrictions, according to government officials.

Covid-19 – Due Diligence And Asset Management

Goldman Tells Workers to Report Vaccine Status by Noon Thursday

Brief : Goldman Sachs Group Inc. set a deadline of noon Thursday for employees to report their vaccination status. The requirement, detailed in a memo sent to employees and seen by Bloomberg News, is the latest in a series of steps Wall Street is taking to return operations to normal after most of the industry’s employees spent more than a year working from home because of the pandemic. Banks reaped record profits even as top executives fretted over the shift. Goldman Chief Executive Officer David Solomon has for months signaled his eagerness to end the arrangement. “This is not ideal for us and it’s not a new normal,” Solomon said at a conference in February. “It’s an aberration that we are going to correct as quickly as possible.” Private equity firms Carlyle Group Inc. and Warburg Pincus have already told employees they’ll require Covid-19 vaccinations to return to the office in September. Employers may demand vaccines under federal law, according to guidance provided last month by the Equal Employment Opportunity Commission. Workers can ask for exceptions for religious or medical reasons.

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Global Investable Assets Reach Record $250 Trillion

Brief: Despite a year of economic uncertainty, financial assets, including stocks, bonds, and other investment funds, globally reached a record $250 trillion in 2020, according to a report by BCG released on Thursday. An additional $235 trillion was in real assets, led by real estate ownership, making up 48 percent of total global wealth. Contrary to analysts’ projections, the total all-time high of financial wealth rose by 8.3 percent over the previous year, due largely to robust stock market performance and increased savings by individuals. The result: More wealth directed toward investment funds, private equity, private debt and real estate, among others. The capital into equities and investment funds rose 11.5% in 2020, according to BCG. Real assets tend to make up the bulk of wealth in developing countries, where capital markets are still in their infancy. “Over the next five years, however, a combination of greater financial inclusion and growing capital market sophistication will change the wealth composition in growth markets,” according to the report. “In Asia, for example, financial asset growth is likely to exceed real asset growth (7.9 percent versus 6.7 percent).

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G-20’s Economy Returns to Pre-Pandemic Level, but Gaps Linger

Brief: The economy represented by the Group of 20 leading industrial and developing nations returned to its pre-pandemic level in the first quarter albeit with differences across the bloc. The G-20 area’s gross domestic product grew 0.8% from the previous quarter, the Organization for Economic Cooperation and Development reported on Thursday. India, Turkey, China, Australia, South Korea and Brazil are now all back at the levels of output seen before the coronavirus struck. But, the U.S., Italy and South Africa were among those still falling short, with the U.K. and Italy recording the largest gaps. The analysis suggests most economies still have a way to go in recovering the ground lost to last year’s recession even though the recovery in demand has been stronger than most economists anticipated. The World Bank this week raised its outlook for global growth, while warning emerging and developing nations will continue to struggle.

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‘We Will see a Financial Crisis’ if COVID-19 Benefits are Left in the Budget: Kevin Brady

Brief: U.S. Representative Kevin Brady (R-Tex.) warns the trillions of dollars spent to overcome the COVID-19 pandemic will add to the U.S. national debt and threaten the country's economic future. "You've got to take all this emergency spending and take it out of the regular budget," Brady told Yahoo Finance Live.  President Joe Biden signed the $1.9 trillion American Rescue Plan into law in March. Then in April, he proposed a $2.3 trillion infrastructure bill called the American Jobs Plan along with another bill, the $1.8 trillion American Families Plan  Biden's proposed federal budget would make some of the COVID-19 pandemic era spending permanent. That would increase government expenditures $6 trillion dollars over 10 years. Biden proposes to pay for it by raising the corporate tax rate from 21% to 28%. The budget proposal posted online by the White House says the increased spending and increased taxes would pay off. "The American Families Plan makes permanent the American Rescue Plan’s expansion of premium tax credits and makes a historic investment to improve maternal health and mortality."

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When Will Emerging Markets Join the Post-Pandemic Recovery?

Brief: Clean balance sheets and higher commodity prices could help EM companies become the biggest beneficiaries of the recovery when "cities reopen and aeroplanes fill up again", say Frank Carroll and Janet Wang, portfolio managers at Oaktree Capital Management. We believe global stock markets have reached an inflection point: value may finally be dethroning growth.  Record-low interest rates and a surge in passive investing helped high-growth stocks outperform equities in traditional value sectors for much of the past decade.  And the Covid-19 pandemic only widened this performance gap.  But in the last few months, investors have begun rotating away from stocks trading at high multiples toward cheaper, value-oriented names that are more sensitive to the economy’s health.  We believe emerging markets offer an attractive entry point for those looking to join this shift toward value. This rotation stems from investors’ expectations of a broad global economic rebound.  While the pandemic is far from over, the rollout of vaccines has injected optimism into the world economy. We believe inflation, reflation and a rebound in economic activity are likely as lockdowns lift, cities fully reopen, planes fill up, and more workers return to offices.

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2020 Saw Record Private Equity Investment of $62 Billion in India

Brief: Private equity investors pumped a record $62 billion into Indian companies last year, according to Bain & Company’s India Private Equity Report 2021. Nearly 40 percent of this inflow came through $26.5 billion worth of investments made in Reliance Industries’ subsidiaries Jio Platforms and Reliance Retail. Excluding the Reliance transactions, the total deal value fell by 20 percent in 2020 (YoY). That’s because large volume deals of more than $100 million slumped by 25 percent. As the pandemic put a stop to all economic activity in the first half of the year, private equity investments too tapered off. However, the second half of the year saw a surge in investments as investor confidence returned. Thus, the number of deals went up by 5 percent from 1,053 in 2019 to 1,106 in 2020. Last year, healthcare saw the highest growth of 60 percent (YoY). However, consumer tech and IT/ITES were the clear favourites, becoming the largest sectors in terms of investment value, according to the report. The virus outbreak moved the world from offline to online and created a large base of digital-friendly and health-conscious users. This led to a deal surge in business for edtech, fintech, verticalized e-commerce and foodtech with big-ticket investments in Byju’s, Zomato, and FirstCry and many more.

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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