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Our briefing for Wednesday June 9, 2021:
Jun 9, 2021 3:23:34 PM
- In the United States, a top health official is sounding the alarm the country should be paying attention on what is happening across the pond, and make sure it doesn’t happen in America. Speaking at a news briefing on Tuesday, Dr. Anthony Fauci, head of the National Institute of Allergy and Infectious Diseases and an adviser to President Joe Biden, said the Delta variant, first reported in India, now accounts for 6% of cases in the United States. Dr. Fauci noted in the United Kingdom, the Delta variant has now taken over as the dominant coronavirus strain; replacing the Alpha variant that originated in the country. Dr. Fauci’s warning comes as 64% of American adults have received at least one dose, but pace of daily inoculations is down by more than two-thirds from April highs.
- Canada’s Federal Health Minister stated on Wednesday that fully vaccinated Canadians and permanent residents crossing the border into country will soon no longer be required to stay at a hotel for part of their quarantine period. Health Minister Patty Hajdu said the government is hoping to ease some restrictions in stages, starting in early July, but those fully vaccinated Canadians and permanent residents will still have to take a COVID-19 test upon arrival and have an isolation plan until their test comes back negative. The current plan does not apply to tourists and will depend on case counts in the country. The news comes after several weeks of pressure from various groups in Canada and the United States of wanting to see some sort of plan from the federal government on what the easing of travel restrictions will look like and when it will happen.
- In the United Kingdom, the country received some troubling news less than two weeks out from the planned easing of coronavirus restrictions on June 21st. The country reported 7,540 new cases on Wednesday, the most since February 26th, according to the government’s data dashboard. As mentioned in the United States briefing, the Delta variant has become the dominant virus strain in the UK. Despite the rise in new cases, the country’s vaccination programme does seem to be lessening the severity of COVID-19 cases with only six fatalities reported, along with the 7,500+ cases reported on Wednesday. The government said it will provide an update on Monday as to whether it can continue with the easing of measures, which would see nightclubs reopen and most other restrictions lifted.
- The German government has extended its coronavirus financial support until the end of September. Since the start of the pandemic, Europe’s largest economy has approved more than €105 billion in company aid and more than €32 billion in wage support. The latest COVID-19 wave in Germany seems to have officially turned the corner, with the country reporting 20.8 infections per 100,000 people over the past seven days, the lowest rate since early October. As of Tuesday, 45.6% of the population had received at least one dose of a coronavirus vaccine and with cases declining, state authorities have been easing pandemic curbs with restaurants, hotels and cinemas reopening, though restrictions on capacity.
- China has been hit with a new coronavirus outbreak and the country is moving swiftly to bring it under control, including using police to detain people who have ignored, or broken COVID-19 prevention laws. The latest outbreak has occurred in the city of Guangzhou, home to over 15 million people. The area has moved to introduce mass testing and local lockdowns in areas since detecting their first case of the Delta variant on May 21st. Over 27 million people have been tested since May 26th in the city and surrounding areas, but authorities remain concerned due to the ability of the Delta variant to spread quickly throughout a population.
- The World Health Organization (WHO) is warning of a “two-track pandemic” as cases decline worldwide but vaccine inequality persists. Speaking earlier in the week, Tedros Adhanom Ghebreyesus, Director General of the WHO, said unequal distribution of vaccines has allowed the virus to continue spreading and increasing the odds that a variant could emerge that could render current treatments ineffective. The two-track pandemic the WHO director general speaks of is the difference between the rich and poor countries in the world. The WHO stated nearly 44% of doses have been administered in what are considered rich countries as opposed to poorer nations, that sit at just 0.4%. Tedros has cautioned countries on lifting restrictions given the increased global transmission of variants of concern.
Covid-19 – Due Diligence And Asset Management
US Financial Crime Compliance Costs Surged in 2020: Survey
Brief : Projected spending by U.S. financial institutions on financial crime compliance shot up by one-third to $35.2 billion in 2020 compared to the previous year, in part due to "increased due diligence times and costs" brought on by the COVID-19 pandemic, according to a new report that surveyed more than 1,000 compliance professionals globally. The $8.8 billion jump from 2019's $26.4 billion projected figure was the second-highest increase of any country, behind only Germany, which added $9.6 billion to its expected tally for the year, according to the report from LexisNexis Risk Solutions. The report shows that virtually all regions of the world experienced sizable year-over-year percentage increases, with the global total across all financial institutions jumping to $213.9 billion in 2020 from $180.9 billion in 2019. "In large part what we're seeing is the effects of COVID-19 and what that's done to shape the regulatory environment and the desire [of companies] to have the right amount of scrutiny in a timely manner," Leslie Bailey, vice president of financial crime compliance for LexisNexis Risk Solutions, told Law360. Labor costs in the U.S. were a main driver of the upticks, accounting for 60% of the total spend in 2020 compared to 54% in 2019. The surge in labor costs could be attributed to additional contracting or entry-level hiring to address increased alert volumes and risks during COVID-19, the report notes.
Spread of Indian Variant Dampened Enthusiasm for UK Equites in May, says Calastone
Brief: Fund inflows slowed in May after the flood of new capital that poured in during March and April, according to the latest Fund Flow Index (FFI) from Calastone, the world’s largest funds network. Even so, inflows to equity funds reached GBP2.2 billion, their eighth best in any month on Calastone’s record, and more than twice the monthly average over the last year. Investors are showing a particular preference for emerging market funds. They saw the second-highest inflow on record in May (GBP256 million), worth roughly one percent of the segment’s funds under management in a single month. By value, global funds saw the biggest inflows (GBP1.25 billion), their fourth-best month, but as the largest fund category this was a much smaller addition relative to funds under management than for emerging markets. Nervousness about a third Covid wave and about potential delays to lockdown easing in the UK dampened enthusiasm for UK-focused equity funds, however. Flows for the month overall were still positive to the tune of GBP147 million, but this was a sharp reduction compared to March and April (+GBP907 million between them). From 11th May onwards, net flows even turned negative as the UK news darkened with an acceleration in infection levels. European funds remained in the doghouse too with just GBP31m of inflows, a rounding error in the context of GBP1.7 billion of combined buy and sell orders.
Europe’s Stimulus Likely to Keep Running as Economies Reopen
Brief: The European Central Bank is expected to leave its stimulus efforts running at full steam Thursday — even as the economy shows signs of recovery thanks to the easing of pandemic restrictions. And that could present a challenge for ECB head Christine Lagarde. She faces a balancing act: acknowledging improving economic data without triggering a premature market reaction that anticipates the eventual reduction in central bank support for the economy. Any talk of a stimulus taper could mean higher borrowing costs for companies — the last thing the ECB wants right now. “Even if economic developments would in our view clearly justify at least having a first tapering discussion, the sheer mention of such a discussion could push up bond yields further and consequently undermine the economic recovery before it has actually started,” said Carsten Brzeski, global head of macro at ING bank. The central bank for the 19 countries that use the shared euro currency has been purchasing around 85 billion euros per month in government and corporate bonds as part of a 1.85 trillion euro ($2.25 trillion) effort slated to run at least through early next year. The purchases drive up the prices of bonds and drives down their interest yields, since price and yield move in opposite directions. That influences longer-term borrowing costs throughout the economy, sending them lower.
Investors Withdraw £800m from M&G Property Fund
Brief: Investors have withdrawn £800m from M&G’s property portfolio and feeder fund since they re-opened for dealing on May 10. According to data from Morningstar, £789m was withdrawn from the main fund in the past four weeks. This was met by the fund's liquidity, which has been supported by some recent sales. The property fund’s value was around £2.1bn before the re-opening. At the time, the fund’s authorised corporate director and its depositary said the fund’s cash weighting was 33 per cent, which translates to about £709m. The fund had a further £253m of assets which were exchanged or under offer, which have all now sold, and it can generate a further £73m from investments held in a REIT, which can be sold down quickly to generate further cash. During the fund’s gating, around 38 properties were unloaded at a combined -0.1 per cent discount to net asset value, which reduced the portfolio’s exposure to retail from 38.4 per cent to 28.1 per cent and pushed it overweight industrials. The fund continues to target 20 per cent liquidity. M&G Investments did not want to comment on fund flows outside of reporting periods but said they have been consistent with expectations.
Green Bonds Were a Better Safe Haven Than Gold During the Pandemic
Brief: During the height of the Covid-19 pandemic, one asset proved to be a better safe haven than gold: green bonds. Climate-friendly debt served as a better protection against large market fluctuations than gold, as well as performing better than other environmental, social, and governance investments, according to new research from Imran Yousaf of Pakistan’s Air University, Muhammed Tahir Suleman of the University of Otago in New Zealand, and Riza Demirer of Southern Illinois University Edwardsville. In the paper, the trio argued that green bonds were the “preferable safe haven” investment for passive investors hoping to defend their portfolios against the “uncertainty” of the pandemic. Conventional stock portfolios that included green bonds saw the highest risk-adjusted returns during the pandemic when compared against equity portfolios supplemented by gold and other ESG assets, the researchers found. In a market downturn like the one seen at the onset of the pandemic, non-risky assets are few and far between. Investors often turn to gold as a familiar, if weak, safe haven asset — but green investments may be able to fill that role, according to the study.
