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Our briefing for Tuesday July 14, 2020:
Jul 14, 2020 3:40:44 PM
- In the United States, California Governor Gavin Newsom reissued a new set of closures for his state. Bars and indoor restaurant dining will be banned throughout the state, while indoor religious services, gyms, hair and nail salons are once again off-limits in most of the state. Over the last two weeks, America’s most populous state has watched its counties coronavirus watch list rise from 19 to 30, which now accounts for 80% of California’s population. Elsewhere in the country, CDC Director Dr. Robert Redfield believes Americans are finally coming around to the idea of facial coverings. “If we all wore face coverings for the next four, six, eight, 12 weeks, across the nation, this virus transmission would stop, Redfield said on Tuesday.
- In Canada, multiple news outlets are reporting the land border closure with the United States will be extended into August. As of right now, the agreement, which is reviewed each month, is set to expire on July 21st. According to the reports, Canadian senior government officials state the arrangement will be rolled over for another 30 days until August 21st. The news of the extension comes after Canadian Prime Minister Justin Trudeau and United States President Donald Trump had a phone conversation on Monday that covered a number of topics, including the border closure.
- United Kingdom’s government will be adopting the measure of having the public wear face masks in shops and supermarkets. The new rules will come into effect as of July 24thand those failing to comply could face fines up to £100. A report from the Academy of Medical Sciences is also sounding the alarm that the UK must prepare for a potential new wave of the coronavirus that could lead to a “reasonable worst-case scenario” of 119,900 COVID-19 related deaths by June 2021. Medical experts are imploring the government and citizens to use the remaining summer months to reduce the risk of health services being overwhelmed to save lives in the winter.
- As France celebrates Bastille Day, a national holiday in the country, President Emmanuel Macron also announced its government’s plan to have masks worn in public mandatory. On Tuesday, President Macron said the new measures will come into effect as of August 1st and will primarily target enclosed public spaces but could also apply to public events held outdoors. In the national television interview, Macron added that France will be among the first countries to have access to a potential coronavirus vaccine developed by French pharmaceutical company Sanofi with testing made available to all French citizens hopefully in the near future.
- In the Philippines, police are set to conduct house-to-house operations to find COVID-19 patients under home quarantine and transfer them to isolation facilities. Government officials are also calling on the public to report those who they believe to be COVID-19 positive and are possibly hiding and report them to authorities. All of this news comes as a fresh lockdown has affected 250,000 in Navotas, one of 16 cities that make up Manila. Those living in one of the poorest areas in Manila will go into lockdown as of Wednesday or Thursday as a full set of guidelines are still being worked on.
- Australian states are tightening restrictions on movement as the COVID-19 hotspot in the state of Victoria continues to show new cases. Active cases in the state rose to 2,000 with 270 detected in the last 24 hours. New South Wales, home to Sydney, are also seeing a spike in cases, so other states like South Australia have canceled their plans to reopen the border as of July 20th. Meanwhile, Queensland introduced a mandatory two-week quarantine for people who have visited two areas in Sydney’s western suburbs.
Covid-19 – Due Diligence And Asset Management
Wanted: Signs of V-Shaped Recovery In Earnings Reports
Brief: Equity investors are no longer losing sleep over the short-term hit to company earnings from coronavirus lockdowns, instead they are looking for early evidence to support the V-shaped recovery narrative that has lifted stocks out of their mid-March crash. As Europe Inc starts churning out trading updates expected to show a more than 50% dive on average in second-quarter profits, many investors are keen to see whether the market bounce back can be sustained. European stocks have on average risen a whopping 36% from March 16 lows sending their valuations soaring to over 17 times their projected annual profits, well above the historic average of 14 according to Refinitiv data, indicating investors are happy paying a premium to buy stocks despite the uncertainty. Many companies pulled their guidance during the peak of the coronavirus crisis, leaving investors in the dark for the rest of the year, prompting them to write off the first-half of 2020. “One of the things that we’re watching for most closely is those companies that did withdraw guidance, do they now feel that they have enough visibility to return (to) giving guidance”, said Sunil Krishnan, head of multi-asset funds at Aviva Investors.” Flying blind into the earnings season, investors are eager to get a concrete sense of how companies are coping on the ground.
VC Fundraising Hasn’t Slowed Down – For the Big Funds
Brief: Venture capital funds closed in the first half of 2020 have boasted one of the largest fundraising totals in the past decade — raising more money in just six months than VCs in all of 2017, 2015, or the preceding years. This is according to the latest industry report from PitchBook and the National Venture Capital Association, which tracked venture capital activity through the end of June. The Silicon Valley Bank and compliance software firm Certent also contributed to the report. “While many of these funds likely began fundraising before the uncertainty of the pandemic affected the markets, closing these massive vehicles over the last two quarters remains an impressive feat,” the report stated. Funds that closed during the first half of 2020 had raised a total of more than $42.7 billion — “which already surpasses the full-year total for every year of the decade apart from 2016, 2018, and 2019,” PitchBook and the NVCA said. This “lofty” total was largely driven by so-called mega funds, defined by the report as those with at least $500 million in assets. Of the 148 funds that closed in the six-month period, 24 were mega funds, according to PitchBook and the NVCA. “This explosion of outsized funds drove the 2020 median fund size back over $100 million for the first time since 2007,” the report stated. In 2019, by comparison, the median fund size was $50 million.
Coronavirus: Virgin Atlantic Finalizes £1.2bn Rescue Deal
Brief: Troubled airline Virgin Atlantic has finalised a rescue deal worth £1.2bn. The package includes support from its main shareholder, Virgin Group, and loans from outside investors. It also includes deferring hundreds of millions of pounds owed both to Virgin Group and to fellow shareholder Delta Air Lines. Virgin Atlantic had initially hoped to obtain emergency funding from the government, but ministers said any subsidies would be a last resort. The funding comes largely from existing shareholders and a new investor, hedge fund Davidson Kempner Capital Management. The company said the plan paved the way for the airline to rebuild its balance sheet and return to profitability in 2022. The Covid-19 outbreak plunged Virgin Atlantic into an acute crisis. Like other airlines, it was forced to ground most of its fleet for months and is not due to resume services until next week. The company had initially hoped the government would step in, but ministers made it clear taxpayers' money could only be considered once all other options had been exhausted. Under the package announced on Tuesday, the airline will receive loans worth £170m from Davidson Kempner, while Virgin Group, its biggest shareholder, will put in a further £200m.
Wall Street Signals Economic Worry With Rush to Defensive Assets
Brief: The constant refrain on Wall Street is that markets have broken from pandemic reality, yet the evidence keeps suggesting otherwise. The S&P 500 staged a late-session reversal on Monday on fresh virus fears that underscore the jitters behind the global rebound in risk. The latter keeps taking place alongside a historic bid for safety and elevated equity volatility. Those signals of investor fear are appearing in the highest quality bonds, where the more than $13 trillion pile of sub-zero yields has threatened to surpass the March peak. In the safest exchange-traded funds, which hold more gold than ever before. Under the equity surface, where valuations point not to exuberance but to continued defensiveness in favor of growth stocks. As companies prepare to report how they fared at the pandemic peak, this bifurcated market is one way to make sense of risk appetite that seems to defy economic logic. “The V-shaped equity market is deceptive,” said Erik Knutzen, the chief investment officer of multi-asset strategies at Neuberger Berman. “Far from a vote of confidence, the rally has been led by a handful of defensive, U.S. large-cap growth stocks, and it has not been backed up by a similar rebound in more economically sensitive sectors and regions or in Treasury yields.” Much has been made of the apparent disconnect between Main Street and Wall Street after stocks staged the fastest rally in history as the world’s largest economy sunk into recession. With the economic fallout of the coronavirus still unfolding, the fact that global equities trade at about 20 times their forward earnings is often a cause for worry.
Hedge Fund Manager Singh Calls Trump’s Handling of Coronavirus ‘An Incredible Gift’
Brief: President Donald Trump’s handling of the coronavirus outbreak early this year was “an incredible gift” for investors because it kept markets stable long enough for some to protect their portfolios, Axon Capital co-founder Dinakar Singh told investors this month. Trump has justified his public assurances that the virus will quickly go away by arguing he needs to be “a cheerleader” for the United States to avoid creating “havoc and shock.” The United States has the highest number of confirmed coronavirus infections and deaths in the world. “We simply never believed ‘what happens in China stays in China,’” Singh wrote in a letter to investors last week that was seen by Reuters. “Trump talking down COVID-19 risk gave investors an incredible gift — it kept markets resilient much longer than they should have, and enabled us to ensure our portfolio was sensibly positioned.” The White House did not immediately respond to a request for comment. Axon, a 15-year-old hedge fund which oversees roughly $1 billion, gained 24.3% in the first half of the year, thanks to bets on technology giants, managed-care stocks and Japanese companies, according to the letter. In the last days Axon extended gains and is now up 30%.
Investment Association Warns of New Scams Targeting Retail Investors
Brief: The Investment Association (IA) has warned that retail investors are facing new and sophisticated attempts by fraudsters to get them to invest in bogus investment products and disclose their personal details in the process. In a report on Tuesday, the IA said investment managers have reported that organised criminal gangs are impersonating their products, particularly bonds, and promoting them through fraudulent price comparison sites and cloning brands with fake documents. The gangs are also targeting potential victims through sponsored links on Facebook and Google. As well as using the names and addresses of staff at real investment management firms. The estimated loss to savers is currently estimated at around £4mln, with around 300 incidences reported to date. IA said reports of the scam had spiked around three months after the coronavirus lockdown, with many investors contacting firms to enquire about unreceived payments before realising they had been conned. The IA said retail investors should be on the lookout for the details of any contacts offered to them, as well as any instances of cold calls. The body also said investors should be wary if they are placed under time pressure to part with their cash, a common fraud tactic.
