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Our briefing for Wednesday January 20, 2021:
Jan 20, 2021 3:11:54 PM
- In the United States, infectious disease expert Dr. Anthony Fauci will lead an American delegation at the World Health Organization’s (WHO) annual meetings this week to re-engage with the governing health body and take a more active role in the coronavirus pandemic. “Once the United States resumes its engagement with the WHO, the Biden-Harris Administration will work with the WHO and our partners to strengthen and reform the organization, support the COVID-19 health and humanitarian response, and advance global health and health security,” according to a statement from President Biden’s team. Former United States President Donald Trump withdrew America from the WHO last year in response to their handling of the pandemic, and their relationship with China.
- Canada received some bad news on Tuesday in their fight against the coronavirus pandemic on the vaccine front. The federal government learned the “temporary” delay from Pfizer via their European plant will mean no new delivery of doses next week. CTV News is reporting that means Canada is set to receive just over 171,000 vaccine doses of the Pfizer vaccine over the next two weeks, instead of the more than 417,000 planned before the drug company announced its delay. This has left the Liberal government scrambling but trying to maintain their goal of having six million Canadians vaccinated by March remains on track, even though Prime Minister Justin Trudeau admits there “is still a lot of work to do.” During a news conference on Tuesday, Ontario Premier Doug Ford, desperate to keep the vaccination train moving, reached out to the United States and their Pfizer factories to share the wealth. However, with America suffering the worst from the pandemic, the request is likely to fall on deaf ears.
- In the United Kingdom, The Telegraph is reporting government ministers are working on plans for easing lockdown restrictions, but it won’t be happening for a while. The Telegraph says the first areas could be moved out of full lockdown and moved into Tier 4 in early March, with only minimal further easing expected before Easter (which is early April). Elsewhere in the country, due to the recent lockdown, Chancellor Rishi Sunak is drawing up plans to extend the UK’s furlough scheme. The government’s $82 billion USD plan, paying as much as 80% of workers’ wages is set to expire at the end of April, but Chancellor Sunak is weighing various options to push the program into the summer.
- Bloomberg is reporting the United Arab Emirates (UAE) vaccine rollout, deemed to be one of the world’s fastest, is fueling one of the best stock rallies. The Dubai Financial Market General Index has climbed about 12% this year, reversing its 10% slump from 2020. According to Bloomberg, only two major markets are performing better. Financial analysts believe the vaccine distribution is a prime reason for this. The UAE have administered more than two million coronavirus vaccine doses, inoculating close to one-fifth of their population.
- The Philippines will allow China’s Sinovac Biotech Ltd to hold clinical trials for its coronavirus vaccine. President Rodrigo Duterte will take the Sinovac inoculation once it becomes available as government officials claim this is the one he prefers but will do so in private. The news comes after China in recent days agreed to donate 500,000 coronavirus vaccine doses to the Philippines in attempt to strengthen the ties between the two nations. The Philippine Food and Drug Administration is still waiting for Sinovac to submit documents on late-stage trials before processing its separate application for emergency use in the country.
- Scientists around the world continue to worry about the COVID-19 variants, and recent news from South Africa might explain why. Reuters is reporting the new COVID-19 variant in South Africa can evade the antibodies that attack it in treatments using blood plasma from previously recovered patients and may reduce the efficacy of the current line of vaccines. The South African variant is 50% more infectious than previous versions and has already spread to at least 20 countries since being reported to the WHO in late December. British scientists and politicians have already expressed concern that vaccines currently being used or in development could be less effective against the variant.
Covid-19 – Due Diligence And Asset Management
US Treasury Yield Curve Predicted to Steepen as Investors Await Biden’s Planned Stimulus
Brief : Long-term US Treasury yields are predicted to rise even higher with a steeper yield curve as the economic outlook improves, with President-elect Joe Biden set to inject fresh fiscal stimulus after his inauguration on Wednesday. Last week, yields on US 10-year debt reached their highest levels since March, rising to 1.17 per cent as expectations of a return to higher inflation and economic growth prompted investors to sell longer-dated government debt. The yield curve also steepened to levels not seen since 2016, according to ratings agency S&P. Investor optimism was sparked initially by the outcome of run-off elections in Georgia favouring the Democratic Party, which is expected to help Biden push through a planned USD1.9 trillion relief package to support the US economy while vaccines are rolled out. Support for the stimulus package came from Biden’s nominee for Treasury Secretary, former Federal Reserve chair Janet Yellen, who said the “smartest thing we can do is act big” as she outlined the plan before the Senate finance committee on Tuesday. If passed by Congress, relief would include direct payments of USD1,400 to all Americans, in addition to USD440 billion aid for small businesses, and USD415 billion for fighting the virus. Brad Tank, CIO of fixed income at US-based asset manager Neuberger Berman, says that yields have risen rapidly in 2021, and are likely to keep going up. Tank says that so far there has been a “fairly orderly adjustment of bond prices to improved growth and inflation expectations”. US 10-year Treasury yields have doubled since August and currently hover around 1.10 per cent yield, with almost 20 basis points of that increase coming since the start of this year.
Morgan Stanley Boosts Targets After Blowout Trading Quarter
Brief: Morgan Stanley boosted both its short and long-term operating targets on Wednesday after coronavirus-induced volatility in financial markets helped the Wall Street bank post a quarterly profit that sailed past estimates. The company also confirmed plans to buy back $10 billion of shares this year, more than three times the figures announced by its retail banking peers, as it wrapped up results for U.S. lenders, which pointed to a modest rebound in the economy. “We are in the growth phase of this company for the next decade,” Morgan Stanley Chief Executive Officer James Gorman told analysts on a conference call. Morgan Stanley increased its two-year target for return on tangible equity to 14%-16%, from an earlier forecast of 13%-15%. The metric measures how well a bank is using its capital to produce profit. The company also raised its longer term target for the same metric to more than 17%, from its previous outlook of 15%-17%.
Fund Managers Look for Bright Spots Amid Gloomy UK Dividend Figures
Brief: The annus horribilis that was 2020 in which payouts from UK companies were slashed by more than 40%, could be a positive development if it leads to a more sustainable dividends market, according to UK fund managers. The idea of a positive reset for UK dividends was part of a cautiously optimistic response to the latest dividend figures. While managers acknowledged they are the lowest since 2011, they also pointed to signs of a slight recovery in Q4 and the hope that the vaccine rollout will spark a recovery in both earnings and dividends over the next year and beyond. According to the UK Dividend Monitor produced by Link Group, UK dividends fell by 44% in 2020 to £61.1 billion, effectively wiping off eight years of growth. The headline dividend figures were the lowest since 2011. Unsurprisingly, Covid-19 accounted for £39.5 billion of the cuts with 67% of companies either cancelling or reducing their dividends between Q2 and Q4. Link’s figures also show that the financial services sector was by far the most affected sector in 2020 with £16.6 billion of dividends either cut or cancelled between April and December, equivalent to two-fifths of the Covid-related cuts.
Africa Private Equity Has $2 Billion Cash Pile After Virus Dip
Brief: Private-equity investors in southern Africa are closing deals again after a virus-induced lull, tapping a cash pile that stood at more than 30 billion rand ($2 billion) in June, according to an industry association. Businesses in the education, health care and retail sectors operating online are among the top picks for investors seeking to take advantage of market gaps amplified by the Covid-19 pandemic, Tanya van Lill, chief executive officer of the Southern African Venture Capital and Private Equity Association, said by phone. “From a venture-capital perspective, we are seeing a lot of activity in East Africa and West Africa, specifically in Nigeria and Kenya, where there has been investment in the fintech, agritech and insuretech space,” Van Lill said. “From a private-equity perspective, it’s fairly equal across the continent, though we are seeing a lot of activity in North Africa.” Prior to the pandemic, private-equity capital was increasingly allocated to infrastructure and energy projects in the region. However, lockdown restrictions imposed as a result of the virus meant firms couldn’t get on the ground to perform due diligence processes and close deals. They also battled to raise funds and sell out of investments, Van Lill said.
Health-Care Expertise Paid Off for Covid-19 Short Sellers
Brief: The success of short sellers during the pandemic appears tied to their health-care expertise and information processing skills, according to a paper from researchers in Germany and Australia. The Covid-19 pandemic is a “health-care crisis by nature,” making health-care-related information valuable across industries and a competitive edge for some short sellers, said Karlsruhe Institute of Technology researchers Levy Schattmann and Jan-Oliver Strych and University of Sydney business school professor Joakim Westerholm in a paper this month. They found short sellers with health-care expertise outperformed a control group that lacked it in their general market trading. The study drew from a German sample of daily short-selling data from November 1, 2012 through June. The researchers covered 266 different short sellers and 214 different stocks, “including a range of well-known brokers and hedge funds like J.P. Morgan or Renaissance Technologies,” according to the paper. As volatile markets moved fast last year as a result of the Covid-19 pandemic, short sellers’ health-care expertise and ability to process aggregate information became more important to producing superior returns than having insight into specific companies, the researchers found.
Qatar Fund Put Pandemic Bets on Distressed Debt, High-Grade Bonds
Brief: Qatar Investment Authority is generating strong returns on a multi-billion dollar bet it made on distressed debt and highly rated bonds at the start of the COVID-19 crisis, two sources familiar with its move said. QIA, a sovereign wealth fund with assets of $300 billion, owns department store owner Harrods and stakes in Barclays and prime properties such as Canary Wharf in London, bet that investment grade bonds would rebound from lows hit in March, investing in both sovereigns and corporates, they said. It was not alone in such a shift, as sovereign wealth funds invested a net $4.5 billion across U.S. fixed income in the third quarter of 2020, the most since at least the end of 2017, latest data from eVestment shows. The S&P 500 Investment Grade Corporate Bond Index has gained about 20% since hitting a low of 417.88 in mid-March. And in a departure from its previous portfolio purchases, QIA also put significant sums into so-called distressed credit, including funds that help struggling companies.
