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Our briefing for Wednesday December 9, 2020:
Dec 9, 2020 3:37:47 PM
- In the United States, Washington politicians are still struggling to find common ground to push through another round of COVID-19 relief funds. Democrats have called the bipartisan talks towards a $908 billion relief bill the most realistic chance of a plan getting through a divided congress. House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer rejected the latest Trump Administration offer as it didn’t include extra jobless benefits. The sticking points on the bipartisan relief bill are disagreements over legal immunity for businesses and state and local government relief.
- Health Canada has given the green light to the Pfizer-BioNTech vaccine, which is key to Canadians receiving inoculations likely by next week. Canada became the third country in the world to authorize the vaccine after the United Kingdom and Bahrain. Health Canada announced the approval after finishing a two-month review of Pfizer’s clinical trial data. It will be up to provincial leaders to decide who get shots when, but Prime Minister Justin Trudeau and the premiers are in agreement that the National Advisory Committee on Immunization (NACI) recommendations should be followed and the most vulnerable, such as those in long-term care homes, will be first in line.
- United Kingdom’s medical regulator warned Wednesday that people with a history of serious allergic reactions shouldn’t receive the COVID-19 vaccine from Pfizer and BioNTech. The reason for this is investigators want to look into whether two reactions on the first day of country’s vaccination program were linked to the inoculation. The two people who reported reactions were National Health Service staff who had a history of significant allergies and carried an adrenaline shot – such as an EpiPen. Both had serious reactions but recovered after treatment. Such advice on vaccines isn’t uncommon as several on the market already carry warnings about allergic reactions. Pfizer and BioNTech said they were working with investigators “to better understand each case and its causes.”
- According to a United States Centers for Disease Control and Prevention (CDC), the coronavirus was circulating in Italy months before the first COVID-19 cases were identified in the country. The CDC report refers to an early December 2019 case in Milan where a child contracted severe acute coronavirus respiratory syndrome. The symptoms at the time were diagnosed as a mistaken case of measles. Upon analysis carried out retroactively on samples, tests showed the child tested negative for measles, but positive for COVID-19. A separate study published in June indicated that virus was present in sewage systems in Milan and Turin as early as December 2019.
- The United Arab Emirates (UAE) said Wednesday the Chinese state-owned Sinopharm’s COVID-19 vaccine was 86% effective in the federation of sheikdoms trial run. The news marks the first public release of information on the efficacy of Sinopharm’s COVID-19 vaccine. The UAE conducted a trial beginning in September, which involved 31,000 volunteers from 125 nations. It’s not clear whether the 86% efficacy is based on those taking part in the testing in the UAE or include results from China and elsewhere. The statement described the vaccine as receiving “official registration” without elaborating on what that meant.
- In Brazil, media are reporting President Jair Bolsonaro is making moves to assert control of the nation’s independent health regulator, Anvisa. Reuters is reporting on November 12th, President Bolsonaro nominated a retired soldier with no background in medicine or vaccine development to be the person to lead the charge with greenlighting vaccines. If he is to be confirmed through Brazil’s Senate, which is likely the case, President Bolsonaro would have three allies for Anvisa’s five directorships, thus giving him control on all major decisions taken by the agency. President Bolsonaro has routinely spoken out against COVID-19 vaccinations and health experts in Latin America’s largest country are concerned Bolsonaro’s political message will now be passed through the public health system.
Covid-19 – Due Diligence And Asset Management
UK Fund Managers Optimistic for 2021
Brief: Healthcare and emerging markets will deliver some of the best returns next year, according to a study that shows UK fund managers' optimism about the post-Covid world. The imminent rollout of vaccines across the globe and the receding threat of Covid-19 mean UK fund managers expect rising markets next year, the Association of Investment Companies (AIC) found. AIC, the UK trade body for closed-ended funds, found that 38% of managers see the arrival of vaccines as the biggest cause for optimism. Other significant factors included technology-driven economic growth and a value-growth rotation which both received 14% of the vote. Close to a quarter (24%) of managers tipped emerging markets as the sector most likely to reward investors, despite the fact that many developing economies have been hardest hit by the pandemic. The UK and the US were also highlighted by 19% and 14% of managers, respectively. Respondents were similarly positive on these markets over the longer-term with emerging markets and Asia Pacific ex-Japan both tipped by 19% to outperform over the next five years, followed by the UK and the US both tied on 14%. According to the AIC’s communications director, Annabel Brodie-Smith, “the prospect of a much longed-for return to normal is influencing managers’ thinking”.
Europe Loosens MiFID II for Research-Driven Economic Bounce
Brief : After three years of criticism, administrative headaches for banks and an exodus from stock research, the pandemic prompted Europe to water down its key financial market rules. The MiFID II regulation, conceived at a time when Britain was a driving force behind the European Union’s financial-services regime, will be relaxed in a bid to boost the recovery from the pandemic. The changes lighten administrative burdens on experienced investors, alter rules on commodity derivatives, and revise the controversial “unbundling” rules that forced investors to pay for investment research separately from trading fees. The European Commission, the EU’s executive arm, said Wednesday that the changes to the revised Markets in Financial Instruments Directive will encourage the investment community to pay more attention to smaller and mid-sized firms, attracting investment as they grow and helping lift the region’s economies out of a historic recession. Under the new policy, equity research on firms with a market capitalization below 1 billion euros ($1.2 billion) can be “rebundled,” or offered for free to a firm’s trading clients. “This will help make it easier for our markets to support European businesses during this difficult time,” Mairead McGuinness, European commissioner for financial services, said in a statement. The Commission proposed changes to the rules in July as the economy took a hit from the Covid-19 pandemic.
Institutional Investors Choose Defensive Allocations Amid Negative Rates Anxiety
Brief: Institutional investors are taking defensive positions into 2021, as they attempt to cushion portfolios against the long-term impact of the pandemic, including the fallout from government and central bank responses to the Covid-19 crisis. According to a recent survey of institutional investors by Natixis Investment Managers, eight in ten institutional investors say markets have underestimated the long-term impact of the global pandemic. The prospect of negative interest rates is considered the biggest portfolio risk for the next year, with four out of five institutional investors saying low rates have already distorted market valuations. In the UK, the Bank of England has kept its base rates at 0.1 per cent for eight months, but is considering taking rates negative in order to support economic activity and increase market liquidity. Other central banks including the European Central Bank, Swiss National Bank and the Bank of Japan, have already been using negative interest rate policies for several years. The risk of interest rates falling even lower is mounting, with Fidelity International saying in a recent note that ever-easier monetary policy “likely to become structural, especially in developed markets”. “As Covid-19 relief packages expire and to help mitigate the impact of a pending fiscal cliff, the Fed may also have to buy longer duration bonds, increase the pace of asset purchases and strengthen forward guidance. More easing is also likely in Europe given weaker growth and inflation expectations,” says Salman Ahmed, global head of Macro and Strategic Allocation at Fidelity.
The Drive to Digitalisation: How to Increase Cybersecurity
Brief: While security has always been at the forefront for funds, this year has tested defence practices and security frameworks utilised by the sector globally. The Covid-19 pandemic has pushed firms to identify and quickly mitigate any new security gaps. This new landscape has accelerated the adoption of advanced security and control measures to survive.“Covid-19 and the impact of social distancing have become the ultimate tech disrupter, driving investment and digitalisation innovations,” says George Ralph, managing director, RFA, ”This growth has been reflected in an increase in the need to manage distributed workforce transformations and a need for new solutions for business productivity, collaboration, and mobility via the cloud and data management.” He notes how these growth areas are not unique to the RFA client, rather, they mirror the broader trends in the global hedge fund industry. Specifically, hedge fund managers are growing more comfortable with moving data to the cloud in an effort to enhance operational value. However, they do still find data management to be one of their most significant challenges and its cited as one of their top spending priorities for the year ahead. Ralph identifies a shift in acceptance and adoption of cloud-based technology: “This marks an inflection point for the hedge fund industry. Firms of all sizes must adapt to the digital working world. Those hedge fund managers that are fully or partially using the cloud will continue to see improvements in operational efficiency.
Fed Keeps Corporate Bond Market Purring After COVID-19 Drove Record Issuance
Brief: Just because an end is in sight for the coronavirus pandemic, it does not mean U.S. companies will stop tapping the bond market. One of the consequences of COVID-19 was a sharp ramping up of corporate debt issuance as companies raced to bolster liquidity in the face of plunging revenues. But even as the economic recovery from lockdowns gathered pace and liquidity became less of a concern, companies have continued issuing bonds, taking advantage of lower borrowing costs to refinance debt and extend maturities. "Refinancing was chapter 1 of the COVID story, which gave way to chapter 2, which is now the favorable conditions and getting ahead of the debt," said Nick Kraemer, head of ratings performance analytics at S&P Global Ratings. The dash for cash started in March. Having first drawn down on credit lines as financial markets began to seize, businesses then flooded into the bond market to pay back their obligations with longer-dated debt. The guarantee of support by the Fed smoothed out credit markets and yields fell back, encouraging companies to refinance at lower rates. By mid-August, investment-grade bond issuance had already surpassed the previous annual record of $1.221 trillion in 2017, according to data from LCD. As of the end of November, the 2020 total stood at $1.652 trillion.
Fees Were Already Under Pressure. Then the Pandemic Hit.
Brief: The coronavirus pandemic has added kindling to the cost and fee pressures that have been smoldering in the asset management industry for years, according to Brown Brothers Harriman. The bank reported Tuesday that fifty-two percent of asset management firms plan to reduce expense ratios, or fees, over the next 12 months, according its new survey of asset management executives. The survey questioned C-suite executives on subjects including new products, costs, operations, outsourcing, and remote work arrangements. BBH interviewed CEOs, CFOs, COOs, and senior executives at global asset managers that included large multinational asset managers and smaller boutique firms. “Fee compression, compliance and regulatory changes, low organic asset growth, and rising technology costs fueled by rapid innovation have all weighed on asset managers,” wrote BBH partner Chris Remondi in a report on the findings. “Enter the COVID- 19 crisis, which accelerated the pace of many of these challenges.” According to the report, fee pressure is coming from big managers that benefit from economies of scale in certain products, as well as from the increased transparency around fees in recent years. One respondent said that “continuing fee pressures are a concern when it comes to revenue retention – it is no longer acceptable to simply pass along operational fees.”
