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Our briefing for Tuesday January 19, 2021:
Jan 19, 2021 3:30:26 PM
- In a bizarre move, United States President Donald Trump in one of his last orders before he is no longer President, moved to lift coronavirus-related travel restrictions. In an executive order issued Monday evening, President Trump said he had been advised by his Secretary of Human and Health Services to lift air travel restrictions for much of Europe, the United Kingdom, Ireland and Brazil as of January 26th. The move though is pretty much dead-on arrival. Incoming Press Secretary Jen Psaki said the Biden administration would not be lifting the restrictions. “With the pandemic worsening, and more contagious variants emerging around the world, this is not the time to be lifting restrictions on international travel,” said Psaki on Twitter. On the advice of our medical team, the Administration does not intend to lift these restrictions on 1/26. In fact, we plan to strengthen public health measure around international travel to further mitigate the spread of COVID-19.”
- During a regular news briefing on Tuesday, Canadian Prime Minister Justin Trudeau implored his citizens not to travel and for those who have booked any trips to cancel them. Prime Minister Trudeau cited the evolving situation with the identified COVID-19 variants from other countries and noted because of this, Canada’s international travel rules could change very quickly. Since the onset of the pandemic, the federal government has continued to advise against any non-essential travel, but with the weather getting colder, Canadian airlines and travel companies continue to offer vacation packages and flight deals to warmer destinations. Acknowledging that people have the right to travel, Prime Minister Trudeau also said the government has the ability to impose penalties for those endangering others’ health.
- The United Kingdom currently has the worst daily coronavirus death rate in the world. The figures collected by Oxford University showed an average of 935 daily deaths due to COVID-19, which would be the equivalent of more than 16 people in every million dying each day from the disease. United Kingdom Prime Minister Boris Johnson warned on Monday while the overall daily cases seem to be trending in the right direction, the country is still in a precarious position as ministers prepare for the easing of lockdown restrictions from early March. The Prime Minister said the process will be gradual with no “open sesame” moment.
- After meeting with the leaders of Germany’s 16 states, Chancellor Angela Merkel has extended and tightened national lockdown restrictions. The lockdown has been extended until February 14 with new rules making it mandatory to wear medical masks in shops and on public transport. These new rules are on top of the restrictions that have been put in place since November which included restaurants, leisure and sporting facilities closed, with schools and non-essential shops following suit in mid-December.
- An independent panel for pandemic preparedness and response said China and the World Health Organization (WHO) could have acted faster to avert catastrophe during the early stages of the coronavirus outbreak. The panel in its evaluation of the start of the crisis in China said the country should have applied public health measures more forcefully in January 2020 after COVID-19 was first detected in Wuhan in late 2019. The report also criticized the WHO for dragging its feet at the start of the crisis – noting the UN health agency didn’t convene its emergency committee until January 22nd, 2020 and didn’t move the coronavirus to its highest alert level until a week later.
- Australia is dealing with a new problem and it all revolves around tennis. The Australian Open – noted as the first of the four Grand Slams in professional tennis – is set to start on February 8th, but coronavirus cases were detected on three of 17 charter flights that carried players and staff. Therefore the 72 players on those three planes have been deemed close contacts of the four confirmed COVID-19 cases and must self-isolate in their hotel rooms for 14 days. While most are making do, the perks of professional athletics and special treatment they usually receive is making for some interesting requests/takes. World number one Novak Djokovic – who arrived on a virus-free flight sent a list of demands to tournament organizers that included allowing players to move to private homes with tennis courts while another – Spain’s Roberto Bautista Agut – ranked 13th in the world - had to apologize for comparing quarantine to prison.
Covid-19 – Due Diligence And Asset Management
Goldman Sachs Profit More Than Doubles on Underwriting, Trading Boost
Brief : Goldman Sachs Group Inc dwarfed Wall Street estimates as its fourth-quarter profit more than doubled, powered by another blowout performance at its trading business and a surge in fees from underwriting a series of blockbuster IPOs. Revenue from global markets, which houses the bank’s trading business, registered its best annual performance in a decade as investors churned their portfolios at the end of a roller-coaster year for financial markets amid the COVID-19 pandemic. Trading, Goldman’s main revenue-generating engine, surged 43% annually. On a quarterly basis, revenue from the unit jumped 23% to $4.27 billion. Investment banking revenue jumped 27% to $2.61 billion during the quarter, driven mainly by equity underwriting, which was up 195% from the same period last year. Equities trading and investment banking revenues both comfortably beat forecasts, Oppenheimer analyst Chris Kotowski said. “It was an exceptionally strong quarter,” he said. The bank’s shares surged 2.6% in early trading, adding to a 20% gain in the past year. Goldman’s shares hit a record high of $307.87 last week, giving it a market cap of over $100 billion. Total revenue climbed 18% to $11.74 billion. The bank’s net earnings applicable to common shareholders rose to $4.36 billion, or $12.08 per share, in the quarter ended Dec. 31. Analysts had expected a profit of $7.47 per share on average, according to IBES data from Refinitiv.
Pandemic Could be Source of Global Crisis for Years: WEF
Brief: The coronavirus has exposed the “catastrophic effects” of ignoring long-term risks such as pandemics, and the economic and political consequences could cause more crises for years to come, according to the World Economic Forum. The WEF’s annual survey of global risks lists infectious disease and livelihood crises as the top “clear and present dangers” over the next two years. Knock-on effects such as asset bubbles and price instability lead concerns over three to five years. The WEF said most countries struggled with crisis management during the pandemic, despite some remarkable examples of determination and cooperation. That highlights how leaders need to prepare better for whatever the next major shock turns out to be. “The immediate human and economic cost of COVID-19 is severe,” the WEF said in the report. “The ramifications -- in the form of social unrest, political fragmentation and geopolitical tensions -- will shape the effectiveness of our responses to the other key threats of the next decade.” While the impact of the pandemic is dominant at the moment, other events will likely come to the fore, according to the survey. As in previous years, extreme weather is seen as the most-likely risk, just ahead of a failure on climate action. Infectious diseases make the top five for the first time in at least a decade. Digital inequality and the concentration of digital power are also seen as major concerns, with WEF Managing Director Saadia Zahidi warning of a global “bifurcation in terms of growth and development.”
Equity and Hybrid Markets Hold Solution to European Covid-19 Corporate Recapitalisation, says AFME
Brief: A report by the Association for Financial Markets in Europe (AFME) and PwC reveals that an equity shortfall of up to EUR600 billion threatens Europe’s economic recovery despite the significant public support measures and private capital made available across Europe to support economies during the pandemic.AFME is calling on the European Commission and members states to introduce measures to bolster Europe’s equity and hybrid markets and expand funding avenues for businesses, further enabling Europe’s economic recovery In a report published today (19th) in partnership with PwC, AFME warns that Europe needs to bridge a gap of EUR450-600 billion in equity needed to prevent widespread business defaults and job losses as Covid-19 state support measures are gradually reduced. The report Recapitalising EU businesses post Covid-19 reveals that despite the support provided by governments and the private sector since the start of the pandemic, 10 per cent of European companies have cash reserves to only last six months. The pan-European trade association is calling on authorities to explore and develop further short-term measures to support Europe’s equity and hybrid markets and accelerate the Capital Markets Union to help fund the recovery. Unless urgent action is taken, a spike in insolvencies could start as early as this month and threaten the EU’s recovery prospects, AFME warns.
Hedge Fund Inflows Surge Amid Equity Valuation Concerns, JPMorgan Says
Brief: Investors have been flocking to hedge funds, an area of alternative investing viewed as a volatility dampener and portfolio diversifier, as markets move toward a post-pandemic world, according to JPMorgan Chase & Co. J.P. Morgan Asset Management saw record capital flowing into its hedge funds during the last two weeks of 2020 and into the first half of January, according to Anton Pil, the global head of the bank’s alternative investing arm. Investors are viewing hedge funds as a counterweight to stretched valuations in equities, embracing them as a diversification strategy on the expectation that they will produce more yield than fixed income, Pil said in a phone interview. “They’ve done something which took a long time,” he said of hedge funds, an asset class that had been out of favor with investors. “They delivered returns that have a low correlation to both fixed income and equity,” Pil explained, while generally providing “pretty significant excess returns over cash.” J.P. Morgan Asset Management’s hedge fund strategies last year produced returns ranging from high single digits to more than 20 percent, Pil said. Investors, meanwhile, face tough challenges finding yield, with the firm forecasting that a traditional portfolio consisting of 60 percent stocks and 40 percent bonds will return 4.2 percent annually over the next 10 to 15 years. The best opportunities for alternative investing have shifted significantly over the past year, according to J.P. Morgan Asset Management’s 2021 Global Alternatives Outlook report, which is expected to be released Tuesday. While hedge funds remain among the “opportunity set” laid out by bank’s alternative asset management arm for the next 12 to 18 months, subordinated credit and real assets have now entered that framework, as well.
M&A Valuations Boom in the Second Half of 2020, Despite Covid-19 Impacts on the Economy, says PwC
Brief: M&A valuations are soaring, with rich valuations and intense competition for many digital or technology-based assets driving global deals activity, according to PwC's latest Global M&A Industry Trends analysis. Covering the last six months of 2020, the analysis examines global deals activity and incorporates insights from PwC's deals industry specialists to identify the key trends driving M&A activity, and anticipated investment hotspots in 2021. In spite of the uncertainty created by COVID-19, the second half of 2020 saw a surge in M&A activity. "Covid-19 gave companies a rare glimpse into their future, and many did not like what they saw. An acceleration of digitalisation and transformation of their businesses instantly became a top priority, with M&A the fastest way to make that happen — creating a highly competitive landscape for the right deals," says Brian Levy, PwC's Global Deals Industries Leader, Partner, PwC US. Dealmaking jumped in the second half of the year with total global deal volumes and values increasing by 18 per cent and 94 per cent, respectively compared to the first half of the year. In addition, both deal volumes and deal values were up compared to the last six months of 2019. The higher deal values in the second half of 2020 were partly due to an increase in megadeals (USD5 billion+). Overall, 56 megadeals were announced in the second half of 2020, compared to 27 in the first half of the year. The technology and telecom sub-sectors saw the highest growth in deal volumes and values in the second half of 2020, with technology deal volumes up 34 per cent and values up 118 per cent. Telecom deal volumes were up 15 per cent and values significantly up by almost 300 per cent due to three telecom megadeals.
Stimulus is Like Heroin, ‘It Doesn’t do you a lot of Good Long-Term’: Wall Street Heavy-Hitter
Brief: Wall Street power player Rob Arnott — the founder of influential money manager Research Affiliates who is known to challenge conventional thinking in markets — is out with a double barreled warning to market bulls who continue to print money during the pandemic on the back of gobs of fiscal and monetary stimulus. First, don’t forget the long-term ramifications of government spending. At some point, that money is going to have to be paid back and Mr. Market won’t dig that. And secondarily, remember the health of Main Street remains detached from the bullish realities of Wall Street this past year during the health crisis. “Applying the word stimulus to spending large quantities of money on a fiscal basis that we don’t already have — creating new money from the central bank — it all feels good. Stimulus, think of it as a little bit like heroin. I have heard that heroin feels good, but it doesn’t do you a lot of good long-term,” explained Arnott on Yahoo Finance Live. The reduced spending from the lockdowns paired with the fiscal and monetary so-called stimulus, pours money into the markets. There is no alternative. With zero yields you may as well go into the markets at any price creating bubbles. And when fiscal and monetary stimulus don’t promote spending in the macro economy, it does into Wall Street and not Main Street.” Arnott founded Research Affiliates in 2002 and it has about $145 billion in assets under management.
