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Our briefing for Wednesday October 21, 2020:
Oct 21, 2020 3:44:28 PM
- In the United States, economists from Goldman Sachs are saying there is little chance Congress will pass economic stimulus before the November 3rd election. Though talks are continuing past House Speaker Nancy Pelosi’s self-imposed 48-hour deadline for a deal, both parties remain at an impasse over key matters such as aid to states and business liability protections. Republicans are looking for a smaller deal focused on payment to individuals and business loans, while Democrats want measures that would provide funding at the state and local levels. Goldman Sachs economist Alec Phillips noted progress is being made in smaller areas like testing and contact tracing when it comes to COVID-19.
- In Canada thanks to their rising COVID-19 numbers, the country will now be removed from the European Union’s (EU) list of travel approved countries in the coming days. In July, the EU set up a so-called “white list” of countries whose citizens were allowed access for non-essential travel. Canada had been on the list since day one, along with several other countries. The United States for instance, due to their high volume of COVID-19 cases were never on the list. The decision doesn’t ban travel immediately for Canadians that want to travel to the EU as the measures aren’t necessarily strictly enforced when it comes to every EU block nation.
- United Kingdom’s hospitality industry is supporting legal action due to the government’s recent coronavirus restrictions. Trade bodies across the industry have engaged lawyers and sent a pre-action letter to Prime Minister Boris Johnson’s government to back up the most recent round of restrictions with scientific data that proves COVID-19 is widely spread through the country’s pubs, bars and other social venues. If the government fails to respond to the letter, the hospitality industry would fast track the case to the High Court for judicial review.
- In Germany, the country’s health minister has tested positive for the coronavirus. The health ministry confirmed Jens Spahn tested positive on Wednesday, went into isolation, and has developed “cold-like symptoms”. The health ministry went on to say all those who came in contact with Spahn have been informed, though no members of Chancellor Angela Merkel’s cabinet will be self-isolating – despite having met with the health minister earlier on Wednesday. A government spokesperson stated: “The Federal Cabinet meets in compliance with hygiene and distance rules, which aim to ensure that even if a person who later tests positive were to participate, quarantining of other or even all participants would not be necessary.”
- China is trying to use the pandemic to fill a diplomatic void promising preferential access to its eventual COVID-19 vaccines. Wang Yi, China’s foreign minister has led the effort reaching out to countries across Asia, Africa and Latin America. The country who first experienced the pandemic is now aspiring to be the world’s global vaccine supplier with four Chinese products now in phase 3 trials, which is considered the final stage to ensure safety and effectiveness has been met before mass public use.
- In Brazil, drugmaker AstraZeneca has suffered another setback after the country’s health authority have claimed a volunteer in the coronavirus vaccine study has died. The Federal University of Sao Paulo, which is helping coordinate late-stage trials in Brazil said the volunteer was Brazilian. The University of Oxford who are partners with AstraZeneca in the making of their coronavirus vaccine said in a statement that after an assessment of the case in Brazil, both parties have no concerns about the safety of their clinical trial. Public sentiment though begs to differ with AstraZeneca’s shares taking a tumble in the market after news started to circulate. AstraZeneca’s trial was stalled in September when a UK participant suffered an unknown illness.
Covid-19 – Due Diligence And Asset Management
Fed’s Brainard Urges More Fiscal Aid in Dark Warning on Outlook
Brief: Federal Reserve Governor Lael Brainard said a failure by Congress to reach an agreement on further support for the economy is the biggest risk to the outlook aside from the coronavirus itself. “Premature withdrawal of fiscal support would risk allowing recessionary dynamics to become entrenched, holding back employment and spending,” said Brainard, viewed as a possible pick for Treasury secretary if Democratic presidential nominee Joe Biden defeats President Donald Trump next month. “Apart from the course of the virus itself, the most significant downside risk to my outlook would be the failure of additional fiscal support to materialize,” she told the Society of Professional Economists in an online speech Wednesday. U.S. central bankers next meet Nov. 4-5, immediately after election day. The U.S. economy is recovering from the severe recession triggered by the coronavirus pandemic, but the pace is showing signs of slowing and recent data has been mixed. Retail sales have picked up and sales of homes and autos also rebounded from the second-quarter lows. Still, the economy has recovered only about half of the 22 million jobs lost and non-farm payroll gains have slowed for three consecutive months.
U.S. Banks Sweat Regulatory Exposure from Pandemic Loans
Brief: Banks that facilitated the U.S. government’s Paycheck Protection Program at first saw the effort as a small revenue booster with a patriotic bonus, shepherding $525 billion in loans to businesses slammed by the fallout of the COVID-19 pandemic. But as taxpayers begin to take on the cost of forgiving those loans, lenders like JPMorgan Chase & Co, Wells Fargo & Co and Bank of America Corp, are girding for what is likely to be years of regulatory scrutiny for their role in doling out the money, according to industry insiders, securities filings and government watchdogs. “The sense of anxiety is high,” said Vivian Merker, a management consultant to financial services firms at Oliver Wyman in New York. “They are gearing up for years of requests from regulators and there’s still reputational risk from PPP fraud even if they did all the right things to follow program rules.” Banks participating in the Paycheck Protection Program (PPP) issued more than 5.2 million loans, to be repaid by the government as long as borrowers demonstrated financial need and used most of the cash to make payroll.
Nearly Two-Thirds of Canadian Companies Failed to Report Cyber Breaches During COVID-19
Brief: Sixty-four per cent of organizations failed to report cyber breaches this year, over fears of reputational damage at a time when more customers are seeking service online, a cybersecurity expert explains. According to a recent Canadian Internet Registration Authority (CIRA) survey on cybersecurity measures within companies, only 36 per cent of organizations that experienced a data breach reported it, a decline from the 58 per cent in 2019. Spencer Callaghan, a spokesperson at CIRA, said in an interview that some organizations don’t have to report breaches because of how the rules are framed in the Personal Information Protection and Electronic Documents Act (PIPEDA). “Some rules don’t apply evenly to all organizations, therefore there could be some variance in the data based on certain organizations that aren’t required to report,” he said. Sumit Bhatia, director of communications and knowledge mobilization with Ryerson's Cybersecure Catalyst, said in an interview that these numbers were a “reflection of how COVID-19 is truly impacting organizations.”
Investor Interest in Hedge Fund Grows as Quarterly Inflows Surge Between July and September
Brief: Investor confidence in hedge funds appears to be on the rise, with allocators pouring in some USD13 billion between July and September, the first quarterly net inflow into the industry in two-and-a-half years. New data published by Hedge Fund Research shows the industry on the whole drew positive net inflows for the first time since Q1 2018, with third quarter allocations – dominated by macro and relative value strategies – bringing the total amount of industry capital globally to some USD3.31 trillion. HFR president Kenneth Heinz said the pick-up in inflows was driven both by defensive outperformance by hedge funds through the coronavirus-driven volatility in early 2020, as well as opportunistic gains through the uneven financial market recovery in the second and third quarters. Uncorrelated macro-focused hedge fund strategies led the pack in the three months between July and September as investors, keenly aware of continued macroeconomic uncertainty and growing trends across global markets, pledged some USD7.2 billion across a range of strategy types. That brought total macro assets to USD579.1 billion, with inflows split almost equally between CTA strategies and uncorrelated currency strategies, HFR said. Quantitative, trend-following systematic diversified CTA strategies drew USD3.2 billion of investor money, while currency-focused funds grew by USD3.1 billion.
China’s Super Rich Got $1.5 Trillion Richer During Pandemic
Brief: China's super wealthy have earned a record $1.5 trillion in 2020, more than the past five years combined, as e-commerce and gaming boomed during pandemic lockdowns, an annual rich list said Tuesday. An extra 257 people also joined the billionaires club in the world's number-two economy by August, following two years of shrinking membership, according to the closely watched Hurun Report. The country now has a total of 878 billionaires. The US had 626 people in the top bracket at the start of the year, according to Hurun in its February global list. The report found that there were around 2,000 individuals with a net worth of more than 2 billion yuan ($300 million) in August, giving them a combined net worth of $4 trillion. Jack Ma, founder of e-commerce titan Alibaba, once again topped the list after his wealth surged a whopping 45 percent to $58.8 billion as online shopping firms saw a surge in business owing to people being shut indoors for months during strict lockdowns to contain the virus.
Which Global Hedge Fund Strategies Have the Most to Offer in a Post-COVID World?
Brief: The opportunity set for many hedge fund strategies is the best it has been for a number of years. In response to the most challenging market environment since 2008, unprecedented fiscal and monetary responses from governments and central banks have created dislocations and distortions in many asset classes. Volatility has returned to equities, bond yields have fallen dramatically, and inflation fears have stoked demand for precious metals. That said, identifying hedge funds that will be successful is incredibly challenging in an industry with over 4,000 funds managing over $2.92 trillion of assets1. Furthermore, given the unconstrained nature of most hedge funds, dispersion within each broad-based hedge fund strategy is much higher when compared to the long-only world, where different strategies are typically benchmarked to an appropriate index. Manager selection is an increasingly important component when deciding which hedge funds are best placed to capitalise in a post-COVID world.
