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Our briefing for Thursday June 18, 2020:
Jun 18, 2020 3:15:29 PM
- Once the epicentre of the pandemic in the United States, and now slowly reopening after flattening their curve, New York state is considering a quarantine for those entering. During a news conference on Thursday, Governor Andrew Cuomo acknowledged his health experts have advised him to issue a quarantine. The news comes as states that opened earlier such as Florida, Texas and Arizona have all experienced their highest single-day increases in new COVID-19 cases. New York City is planning to enter stage two of its reopening on Monday.
- In what has become a worldwide trend, Canada has now announced a new cell phone app that will alert the user if they’ve come in contact with someone who tested positive for COVID-19. The technology works by having people who test positive upload their results anonymously to the app, under the guidance of a health-care professional. During a news briefing, Prime Minister Justin Trudeau said there are over 30 million smartphones in the country that could take on this app, but it will be up to the individual whether to use it or not. The app will be tested in Ontario first, before being available to hopefully all provinces by July.
- The United Kingdom is switching course, dumping their contact-tracing app produced by the innovation arm of the National Health Service (NHSX), in favour of a new model based on Apple and Google technology. The NHSX model was criticized by privacy advocates and has experienced technical problems and delays. Speaking at a news conference on Thursday, UK Health Secretary Matt Hancock refused to issue a timetable for the new app saying the government is working on it, want to make sure the technology can help and is working effectively.
- A German slaughterhouse was temporarily shut down on Wednesday after 650 of its workers tested positive for the coronavirus. The director of quality management for the company acknowledged the plant had a number of foreign workers who had travelled in recent weeks and might have been carrying the virus with them. The director also noted social distancing was not easy at the slaughterhouse facility. In reaction to the outbreak, the German government announced it would bring in new laws to protect workers.
- Earlier in the week, Brazil recorded 32,000+ new coronavirus cases in a 24-hour time period, the most since the pandemic began. The country reported close to 1,300 deaths from the disease on Wednesday, which brought their death toll to 46,510, trailing only the United States for most in the world. Brazil is closing in on 1 million cases overall, again only trailing the United States for most worldwide.
- India’s Prime Minister rejected media reports that the government was considering reimposing lockdowns. Instead Prime Minister Narendra Modi said the country has to think about further unlocking areas, while minimizing all possibilities of harm to people. This will prove to be a difficult task as India is a country of 1.3 billion people and have recently recorded their largest one-day spike of coronavirus cases, at close to 13,000.
- After what New Zealand’s Prime Minister acknowledged as an “unacceptable” failure of the system, Australia is warning that their country’s borders could remain shut until at least next year. The two neighbouring countries were in talks of creating a travel bubble, but Australia’s Tourism Minister is urging its residents to consider a holiday at home.
Covid-19 – Due Diligence And Asset Management
Dalio’s Bridgewater Warns of Possible ‘Lost Decade’ for Stocks
Brief: A reversal of the strong growth seen over the years in U.S. corporate profit margins could lead to a “lost decade” for equity investors, Ray Dalio’s Bridgewater Associates warns. The margins, which have provided a big chunk of the excess return of equities over cash, could face a shift that would go beyond the current cyclical downturn in earnings, Bridgewater analysts wrote in a note to clients dated June 16. “Globalization, perhaps the largest driver of developed world profitability over the past few decades, has already peaked,” the analysts said. “Now the U.S.-China conflict and global pandemic are further accelerating moves by multinationals to reshore and duplicate supply chains, with a focus on reliability as opposed to just cost optimization.” The pandemic-induced collapse in demand has already resulted in a huge fall in profit margins in the short term, the analysts added. Intel Corp. and Taiwan Semiconductor Manufacturing Co. are cited as two examples of companies that have announced their intentions to build production facilities in the U.S., despite the higher costs.
Lawyers Warn of Spike in Suits Against Hedge Fund ‘Fraudsters’
Brief: Frauds tend to be revealed amid a crisis — Bernie Madoff’s $64.8bn Ponzi scheme came to light not long after the financial fallout of 2008 as investors tried to retrieve their funds. It remains the largest financial fraud in US history and led to Madoff receiving a 150-year prison sentence. "When the music stops, often one sees the skeletons come dancing out of the closet," Paul Austin, director of business intelligence at City law firm Enyo Law, told FN. Noting the Madoff case,Austin said he expects similarlegal trouble for hedge funds and scrutiny of the industry as a result of the 2020 market shocks. "When things are going well and everyone's making money, it's harder to identify fraud because there's less scrutiny, but now there will be some nervous hedge funds out there." "People will use the crisis as an excuse to try to renege on contracts" Austin added. "As well as the contractual claims, you'll have fraud claims since during the bad times fraud gets uncovered. You might also see a surge in criminal claims as a result of Covid-related fraud." Austin said the recent decline in face-to-face meetings and lack of physical research, driven by workers in lockdown, will be a contributing factor towards what he says will be a surge in litigation. "Social distancing has made due diligence more challenging," he said. "Going to premises, interviewing people in person — that has stopped."
Wall Street Rewrites Market Playbooks for Pandemic’s Second Wave
Brief: As the world braces for a second wave of infections from the coronavirus, stocks are priced for a booming global economy, bonds point to a protracted downturn and currency volatility is rising. Investors are increasingly uneasy with these conflicting signals among asset classes, but they are also resigned to them, and have adjusted their playbooks accordingly. Tried-and-tested strategies that directed buyers into stocks in good times and bonds in bad times began to unravel in the face of unconventional monetary policy a decade ago. They are being dropped now as central banks ramp up their response to the virus and governments pledge more than $8 trillion of fiscal stimulus to combat the fallout from the pandemic. “It’s a hard shift in markets and at the heart of all of this -- undoubtedly -- is the Federal Reserve’s efforts to revive the economy,” said Shyam Devani, chief strategist at SAV Markets in Singapore. “There are glimmers of 2008 financial crisis investing, but this time, from equities to bonds to currencies, there is a sense that stakes could be higher.” MSCI Inc.’s broadest measure of international stocks shows member companies trading at more than 19 times next year’s earnings. These kinds of levels haven’t been seen since the dot-com bubble burst in 2002. And what’s worrying is they come as millions of people are cast into unemployment by what the United Nations has called the most challenging crisis since World War II.
KKR Buys Vacation Parks Firm Roompot in $1.1 Billion Deal
Brief: U.S. private equity firm KKR (KKR.N) said on Thursday it had reached an agreement to buy Dutch vacation parks firm Roompot from French private equity firm PAI Partners. KKR and Roompot did not disclose the price of the deal, but a source familiar with the transaction said it valued the Dutch company at around 1 billion euros ($1.12 billion). PAI put Roompot up for sale last October. It is the second-largest operator of vacation parks in Europe, operating its own 33 parks in the Netherlands, Belgium and Germany, and providing services to more than 100 other operators across Europe. With over 2,100 employees catering for approximately 3 million guests per year, the company generates around 400 million euros in annual sales. PAI Partners bought Roompot for 600 million euros in 2016 from Dutch investor Gilde.
Fund Managers Fear Markets “Overvalued” as Cash Levels Collapse
Brief: The highest number of managers since 1998 believe that the stock market is “overvalued”, as cash levels are collapsing and growth expectations jump, according to the latest Bank of America Merill Lynch fund manager survey. Although investor sentiment is past “peak pessimism”, optimism in June is both fragile and neurotic, with a second wave of the Covid-19 pandemic posing the biggest tail risk, the bank said in its report. Only 18% of the 212 survey panellists expect a V-shaped recovery, against the 64% who believe we are headed for a U- or even W-shaped recovery. June also saw the largest fall in cash levels since August 2009, from 5.7% to 4.7% (led by institutional investors not retail investors.) Meanwhile, hedge fund net equity exposure soared from 34% to 52% - the highest since September 2018 as they chase the “pain trade” higher. The report also found that fear of prolonged recession was down to net 46% in June from 93% in April. But how the world will look post-Covid was a key issue for global fund managers, with large structural shifts expected.
BNP Paribas Decides to Shut Down Onshore Wealth Management Business
Brief: French banking major BNP Paribas has decided to shut down its onshore wealth management business having assets under management of $14.5 billion, officials said on Tuesday.The entity said the move is driven by strategic reasons, wherein it wants to focus on businesses like corporate and institutional banking, and cannot be linked to the Covid-19 crisis. “BNP ParibasWealth Managementhas decided to exit its onshorewealth managementbusiness in India in order to focus on areas where its global footprint and diversified business strengths allow it to provide clients with more value-added services,” a spokesperson said. According to officials in the know, there are about 60 people working for the business in India and they have been given the option to either relocate to other businesses like its wholly owned brokerage subsidiary Sharekhan, which has products for the high networth individuals or join its offices in Hong Kong or Singapore.
