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Our briefing for Tuesday May 18, 2021:
May 18, 2021 3:48:55 PM
- In the United States, the Centers for Disease Control and Prevention (CDC) released a new report that suggests rural communities could be prolonging the pandemic. The report notes through April 2021, vaccination coverage was nearly 39% in rural counties, compared to more than 46% in urban counties. This is despite in September 2020, the incidence of COVID-19 in rural counties surpassed those in urban counties. Obtaining a vaccine can be more difficult in rural areas for obvious reasons: distance to travel and harder access to doctors just to name a few. About 60 million or about one in five Americans still live in what is considered rural communities and if the low vaccination rates continue, it could have a negative impact on the country’s overall effort to control COVID-19 going forward.
- Canadian Prime Minister Justin Trudeau is suggesting that three-quarters of Canadians will need to be vaccinated against COVID-19 before the federal government considers opening the land border with the United States. Prime Minister Trudeau admitted discussions about the border reopening are ongoing, but he was quick to dampen expectations that travel restrictions would be lifted anytime soon; noting many provinces are still going through the third wave of the virus, which has been worse than the first two. United States lawmakers are urging the Biden administration to get serious about drafting a plan to allow travel to Canada in time for the 4th of July long weekend in America.
- United Kingdom Prime Minister Boris Johnson was busy trying to clarify where Britons are now safe to travel after one of his own cabinet ministers said it was acceptable to visit countries like France and Spain to see friends. Those two countries are on the UK’s “amber list” which means Britons should not consider holiday destinations there. “If people do go to an amber list country - if they absolutely have to for some pressing firmly or urgent business reason – please bear in mind that you will have to self-isolate, you will have to take tests and do a passenger locator form and all the rest of it,” said Prime Minister Johnson. It was Environment Secretary George Eustice who made the comments about travelling to Spain and France. As of right now – only 12 countries or territories are on the UK’s green list for quarantine-free visits.
- India’s Serum Institute stated on Tuesday it hopes to start delivering COVID-19 vaccine doses to the World Health Organization’s (WHO) led COVAX initiative and other countries by the end of the year but will continue to prioritize India. Adar Poonawalla, CEO of the Serum Institute also noted in the statement his company has “never exported vaccines at the cost of the people of India and remain committed to do everything we can in support of the vaccination drive.” The Serum Institute, known as the world’s largest vaccine manufacturer, has come under intense pressure in recent months to deliver on multiple ends and more so, its home country as India suffers through a devastating wave of COVID-19. The WHO’s Director-General Tedros Adhanom Ghebreyesus stated on Monday that once the COVID-19 outbreak recedes, the Serum Institute will need to “get back on track and catch up” on its delivery commitments to COVAX.
- In Japan, a major Japanese doctors’ group is the latest to call on the Tokyo Olympic Games, scheduled to begin in two months, to be cancelled. The Tokyo Medical Practitioners Association warned the country’s healthcare system could not cope with the medical needs of thousands of athletes, coaches and press, on top of the existing surge of COVID-19 cases in their own citizens. The association is at least the second group of Japanese doctors to demand the Olympics and Paralympics be cancelled for a second straight year due to the coronavirus. However, the Japanese government and the International Olympic Committee have given every indication that the show will indeed go on.
- Australian Prime Minister Scott Morrison has come out in defence against his government’s handling of its borders during the coronavirus pandemic after experts warned that plans to keep the borders closed for another year would create a “hermit nation”. “Everyone is keen to get back to a time we once knew” said Prime Minister Morrison. “The reality is we’re living this year in a pandemic that’s worse than last year.” On Tuesday, Australian Medical Association president Omar Khorshid warned: “Australia cannot keep its international borders closed indefinitely”. In March 2020 Australia took the unprecedented step of closing its borders to international visitors and banning its citizens from leaving. The moves prompted the first population decline since the First World War, stranded tens of thousands of Australians citizens overseas and separated hundreds of thousands of residents from family members.
Covid-19 – Due Diligence And Asset Management
Coatue, Whale Rock Among Hedge Funds Trimming Pandemic Plays
Brief : As the world begins to emerge from lockdown, some hedge funds are slashing technology investments that thrived in the work-from-home era. Philippe Laffont’s Coatue Management slashed many of its tech holdings that have benefited from the pandemic-induced lockdowns, including most of its stake in fitness-equipment maker Peloton Interactive Inc. The fund cut its exposure to cyber-security solutions company Crowdstrike Holdings Inc. and Zoom Video Communications Inc. in half. Overall, its exposure to technology stocks fell by about 8%, data compiled by Bloomberg show. Alex Sacerdote’s Whale Rock Capital Management exited its investment in Zoom, and decreased stakes in Peloton and Crowdstrike. The hedge fund trimmed its overall exposure to tech stocks by about 5%, Bloomberg data show. The filings offer a glimpse into the maneuvering by major hedge fund managers and other investors during the first quarter of 2021, a tumultuous period for the industry marked by a Reddit-fueled trading frenzy and the implosion of Bill Hwang’s Archegos Capital Management. At the same time, investors are looking toward a post-Covid 19 economic recovery where the world gradually reopens and people return to work.
Investor Inflows Hits USD9 Billion as Hedge Funds see Trade Volumes Surge in Q1
Brief: Event driven strategies topped the hedge fund performance chart during the first three months of the year, as the industry drew some USD9 billion in new capital in Q1 and saw trading volumes surge, new analysis by hedge fund asset administrator Citco shows. Citco Fund Services’ ‘2021 Q1 Hedge Fund Report’ probed strategy performance, investor flows and trading volumes, among other things. The study found that close to three-quarters – 73.4 per cent – of hedge funds delivered a positive return during Q1 as the strong performances at the end of 2020 carried through into the new year. The quarterly report noted that event driven strategies led the pack during the three months to the end of March, with a weighted average return of 8.25 per cent for the quarter. Overall, the industry notched up a 2.75 per cent weighted average gain. Positive outliers across event driven, commodities and macro strategies drove average gains higher, Citco said. As oil markets spiked in the early months of the year, commodities strategies rose 7.24 per cent, as global macro funds climbed 5.31 per cent during the three-month period. Though equity-based funds were bottom of the pile, they still managed to generate a 1.65 per cent gain. Within equities, long bias performed better at 5.45 per cent, while equity long/short managers scraped a 0.42 per cent gain.
WH Memo Sees Economic Strength Where Critics See Fragility
Brief: White House officials are seeking to quell anxiety about inflation and the pace of hiring — issuing a memo Tuesday that highlights robust economic gains as the United States gets vaccinated and recovers from the coronavirus pandemic. The memo, obtained by The Associated Press, said the administration is “focused on an economic strategy of containing the virus and growing the economy from the bottom-up and middle-out. Data suggest that this strategy is working.” It is from Brian Deese, director of the White House National Economic Council, and Cecilia Rouse, chair of the Council of Economic Advisers. The memo makes the case to senior administration officials and members of Congress that the government’s $1.9 trillion relief package has helped boost growth and that workers will return to jobs with “fair wages and safe work environments.” It also argues that President Joe Biden’s $4 trillion infrastructure and families plan will lay “the groundwork for strong, durable growth for decades to come.” The administration had until recently been basking in optimism about the economy, only to face a worrisome set of reports that showed a jump in consumer prices and a disappointing level of hiring in April. The memo is an attempt to promote a sunnier narrative and stress the need for additional spending to be paid for with higher taxes on corporations and the wealthy.
Thailand Said to Plan $22 Billion Borrowing to Fund Covid Relief
Brief: Thailand plans to borrow an additional 700 billion baht ($22.3 billion) to fund measures to counter the worst Covid-19 outbreak to hit Southeast Asia’s second-largest economy, people familiar with the matter said. A meeting of the cabinet chaired by Prime Minister Prayuth Chan-Ocha on Tuesday approved the new borrowing plan from the finance ministry, the people said, declining to be identified before a public announcement. The government proposes to spend 400 billion baht of the new borrowing to help various sections of the society affected by the new outbreak, while 270 billion baht will be used to revive the economy, the people said. About 30 billion baht will be set aside to finance medical supplies and vaccines to contain the latest outbreak, they said. The fresh borrowing can be completed before Sept. 30 next year, and is on top of an ongoing 1-trillion baht debt plan authorized by the cabinet last year to fund pandemic relief measures, they said. Thailand’s public debt-to-gross domestic product ratio may rise to 58.6% by September with the additional borrowing, but would still be below the nation’s 60% debt ceiling, the people said. The government will need to issue an emergency law that needs to be endorsed by the king before the public debt management office can begin raising fresh debt, they said. Kulaya Tantitemit, a spokesperson for the Finance Ministry and head of its Fiscal Policy Office, declined to comment. Anucha Burapachaisri, a government spokesman also declined to comment.
Credit Traders Have No Room for Error in Dot-Com Bubble Redux
Brief: A growing chorus of analysts is warning that high-quality company debt may have nowhere to go but down as investment-grade spreads approach levels last seen in the lead-up to the dot-com bubble. “The best days are behind” for corporate credit, Morgan Stanley strategists led by Srikanth Sankaran wrote in a May 16 midyear outlook. “The combination of extended valuations, less favorable technicals and a slower pace of balance sheet repair suggests that credit markets have progressed to a mid-cycle environment.” Spreads on BBB rated bonds, which account for more than half of the high-grade universe, narrowed to an average of 106 basis points over Treasuries on Monday, fueled by investor demand for the lowest-rated yet highest-yielding part of the asset class. Should spreads breach 100 basis points, it would be the first time since the dot-com era of the late 1990s. Morgan Stanley is calling for 17 basis points of widening for U.S. investment-grade bonds through the first half of 2022, and downgraded its credit outlook to neutral.
EU’s Prelude to Landmark Recovery Bond Sales Ends With a Whimper
Brief: The European Union’s final bond sales for its regional jobs program failed to live up to the hype of previous editions, a concerning sign for its landmark borrowing spree that’s due to start in the second half of the year. Investors placed 88.7 billion euros ($108 billion) of orders for eight- and 25-year securities tied to the SURE social program, little more than a third of the record set for a dual-tranche issue last year. It comes as yields across the region climb as investors prepare for European Central Bank to scale back its bond purchases in the face of growing inflationary pressures. The bloc is ready to start sales for its 800 billion-euro recovery fund by July. It marks a stark turnaround for one of the hottest new triple-A rated bond markets in town. When the EU launched the securities last year, Europe was still firmly in the throes of lockdowns, the ECB was committed to pumping money into debt markets and investor demand for the securities was enormous. Now, with economies reopening and consumer prices expected to accelerate, they’re becoming a less attractive asset. “We had been used to some very strong demand for the EU bonds,” said Jens Peter Sorensen, chief analyst at Danske Bank AS. “Why buy today, if you can buy cheaper tomorrow? That’s becoming a self-fulfilling prophecy.”
