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Our briefing for Wednesday February 17, 2021:
Feb 17, 2021 4:14:36 PM
- United States President Joe Biden’s administration announced on Wednesday they will invest more than $1.6 billion to increase COVID-19 testing programs in schools and elsewhere. The Department of Health and Human Services and Department of Defense will spend $650 million to expand testing opportunities for K-8 schools and other facilities, including homeless shelters. The Biden administration will also spend $815 million to increase production of testing supplies and $200 million to identify and track new emerging variants of the virus. According to Bloomberg, the United States has found 1,277 total cases of the United Kingdom variant in 42 states so far.
- In Canada, the province of Alberta is adding $120 million in pandemic supports for struggling businesses. The funding will come in the form of additional $10,000 in grants to small and medium-sized businesses that have seen severe drops because of the coronavirus pandemic. The support will be available to companies with fewer than 500 employees and does not need to be repaid. Elsewhere in the country, Quebec Health Minister Christian Dube announced Wednesday that the government will make rapid COVID-19 tests available to private companies to reduce workplace outbreaks. In a statement, the health minister said companies will have to prove their workplaces are vulnerable to coronavirus outbreaks and that they follow proper infection protocols.
- The United Kingdom will become the first country in the world to give the green light for which human volunteers will be deliberately exposed to COVID-19. The trial is expected to start within a month and will see up to 90 healthy volunteers aged between 18 and 30 exposed to the smallest amount of the virus needed to cause infection. “The absolute priority, of course, is the safety of volunteers,” said Peter Openshaw, a professor of experimental medicine and the man co-leading the project. “None of us wants to do this if there is any appreciable risk.” Scientists have used human challenge trials for decades to learn more about diseases such as the flu, malaria and typhoid to develop treatments and vaccines against them.
- Germany’s Health Minister Jens Spahn said the UK variant of the coronavirus is spreading rapidly through the country and now accounts for more than one in five cases. Speaking at a news conference on Wednesday, Spahn said the UK variant will become the dominant strain in the country and is “doubling every week”. Despite this, Spahn stressed the COVID-19 restrictions are working as infection rates were falling in Germany even with the spread of the variant. Germany has also partially closed its land borders in an attempt to stem the spread of new variants entering.
- Australia’s Victoria state reported no local coronavirus cases on Wednesday, which means their snap five-day lockdown is due to end. The country’s second most populous state was sent into lockdown last Friday after an outbreak was linked to a quarantine hotel in Melbourne. Schools and businesses will reopen, but some restrictions on public and private gatherings will remain. Fans will also be allowed to return to the Australian Open tennis tournament with approximately 50% capacity and nearly 7,500 people allowed into Melbourne Park per session going forward.
- The United Nations Secretary General has called on the international community to help ensure the world gets vaccinated as soon as possible. Speaking at a virtual UN Security Council meeting Wednesday, Secretary General Antonio Guterres said the “progress on vaccinations has been widely uneven and unfair”. Guterres pointed to the following statistics: just ten countries have administered 75% of all COVID-19 vaccines with more than 130 countries not yet receiving a single dose. Guterres went on to add, “the world urgently needs a Global Vaccination Plan to bring together all those with the required power, scientific expertise and production, and financial capacities.”
Covid-19 – Due Diligence And Asset Management
COVID Response Drives $24 Trillion Surge in Global Debt
Brief : The COVID pandemic has added $24 trillion to the global debt mountain over the last year a new study has shown, leaving it at a record $281 trillion and the worldwide debt-to-GDP ratio at over 355%. The Institute of International Finance’s global debt monitor estimated government support programmes had accounted for half of the rise, while global firms, banks and households added $5.4 trillion, 3.9 trillion and $2.6 trillion respectively. It has meant that debt as a ratio of world economic output known as gross domestic product surged by 35 percentage points to over 355% of GDP. That upswing is well beyond the rise seen during the global financial crisis, when 2008 and 2009 saw 10 percentage points and 15 percentage points respective debt-to-GDP jumps. There is also little sign of a near-term stabilisation. Borrowing levels are expected to run well above pre-COVID levels in many countries and sectors again this year, supported by still low interest rates, although a reopening of economies should help on the GDP side of the equation.
Global Pension Funds Weather the Storm of 2020
Brief: Global institutional pension fund assets in the 22 largest major markets (the P22) continued to climb in 2020 despite the impact of the pandemic, rising 11 per cent to USD52.5 trillion at year end, according to the latest figures in the Thinking Ahead Institute’s Global Pension Assets Study. The seven largest markets for pension assets (the P7) – Australia, Canada, Japan, the Netherlands, Switzerland, the UK and the US – account for 92 per cent of the P22, unchanged from the previous year. The US remains the largest pensions market, representing 62 per cent of worldwide pension assets, followed by Japan and the UK with 6.9 per cent and 6.8 per cent respectively. According to the study, there was a significant rise in the ratio of pension assets to average GDP, up 11.2 per cent to 80.0 per cent at the end of 2020. This is the largest year-on-year rise since the study began in 1998, equalling the increase recorded in 2009 as pension assets bounced back after the global financial crisis. Whilst the measure usually indicates a stronger pension system, the sharp rise also underlines the economic impact of the pandemic on many countries’ GDP. Among the seven largest pensions markets, the trend was even more pronounced with a 20 per cent rise in the pension assets to GDP ratio to 147 per cent in 2020, from 127 per cent the year before.
Europe Braces for Pandemic Reality to hit Banks
Brief: Unpaid debt from pandemic-stricken borrowers has ravaged profits at Europe’s big banks and kick-started a debate among politicians about whether they may ultimately need state help. Reflecting on the pandemic impact, many bank executives say the worst is behind them, with Societe Generale CEO Frederic Oudea and BNP Paribas CEO Jean-Laurent Bonnafe predicting an imminent rebound. “Optimism is ... a weapon of war,” Philippe Brassac, chief executive of Credit Agricole said in January, decrying “doom-mongers”. “And this war, we can win.” All three French lenders saw profits shrink last year and profits at Spain’s Santander and Dutch bank ING also dipped. While executives voice confidence, European officials worry the banks’ problems have barely begun. They fear more borrowers will default when government support, including billions of euros of loan guarantees in France, Spain and elsewhere, is unwound.
Short Interest in Biggest Credit ETF Jumps to COVID-Panic Level
Brief: Investors are building bets against the largest corporate debt exchange-traded funds as spreads shrink and interest rates rise. Short interest as a percentage of shares outstanding on the US$48 billion iShares iBoxx $ Investment Grade Corporate Bond ETF (ticker LQD) jumped to more than 15 per cent, up from 5.9 per cent at the start of the year, according to data from IHS Markit Ltd. That’s the highest level since last March, when high-quality bonds sold off as investors raced to raise cash in the face of a quickly spreading pandemic. Now, with the vaccine rollout underway and an economic reopening in sight, investment-grade credit spreads to Treasuries have tightened sharply. Meanwhile, building reflation bets have boosted long-dated Treasury yields to the highest levels in a year, renewing concerns about relatively high LQD’s duration -- a measure of sensitivity to interest-rate changes. Against that backdrop, the risk-reward for high-grade corporate bonds looks less compelling, according to Wells Fargo Investment Institute.
The Scientific Study of the Extremely Obvious: Evidence Shows Retail Investors Paid More Attention to Stocks During Lockdown!
Brief: For the last year, market commentators and investment professionals have blamed volatile markets on bored retail investors trading on Robinhood while stuck at home during the pandemic. Turns out they were right, according to a new study from a top Australian university.Researchers from the University of Western Australia used Google mobility data and internet traffic to analyze how much individual investors in the U.S. paid attention to stock markets and publicly traded companies while under lockdown. The academics found that the extended periods at home led to higher market engagement by retail investors, especially among younger populations and in states where fewer people worked from home prior to the pandemic. “The stay-at-home duration increases retail attention and contributes to heightened trading activity in the financial market,” authors Daniel Cahill, Chloe Ho, and Joey Yang wrote in their paper. To measure how much attention individual investors paid to public companies, the trio looked at pageviews for those companies’ Wikipedia profiles. They found that the daily average views for company Wikipedia pages increased from March to April, as people spent more time at home due to Covid-19.
Hintze’s CQS Hedge Fund Firm Unveils New Total Return Credit Strategy After Bruising 2020
Brief: CQS, Sir Michael Hintze’s long-running multi-strategy credit-focused hedge fund firm, has launched a new actively-managed strategy which aims to generate higher returns across corporate sub-investment grade opportunities against a backdrop of increased volatility and unpredictable markets. The CQS Total Return Credit Fund targets a range of geographies, asset classes and sectors, across various ratings classes, using a bottom-up, fundamental research process. The UCITS compliant strategy - managed by Craig Scordellis, head of multi-asset credit, and Darren Toner, head of high yield investment grade and financial portfolios - will use an unconstrained investment approach to scope out the strongest opportunities and maximise risk-adjusted returns while aiming to curb volatility and potential defaults. The fund will also use ESG (environmental, social and governance) processes as part of the portfolio-building process, including engaging directly with debt issuers to influence long-term corporate behaviours, promote responsible practices, and mitigate ESG risks.
