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Our briefing for Monday June 28, 2021:
Jun 28, 2021 4:25:40 PM
- In the United States, as plan “A” for President Joe Biden’s administration and its vaccination goal for July 4th were thrown off-stride, they are now moving onto plan “B”. The Associated Press is reporting the Biden administration is sending its A-list officials across the country, devising advertisements for niche markets and enlisting community organizers to persuade unvaccinated people to get the COVID-19 shot. The focus is on what health officials call the “moveable middle” – a group of about 55 million Americans – most under the age of 30. “We’re not just going to do the mass vaccination sites,” said Health and Human Services Secretary Xavier Becerra. “It’s door to door. It’s mobile clinics. We’re doing vaccinations at church, the PTA meeting, the barber shop, the grocery store.” It’s unclear how well the administration’s plan “B” is working with vaccination rates now dropping below one million a day and no sign yet of a turnaround.
- In Canada, Ontario is claiming to set a new North American record for most vaccinations at a single site in one day. Over the weekend, health officials set-up shop at Toronto’s Scotiabank Arena – home normally to professional sports teams like the Toronto Maple Leafs and Toronto Raptors – to administer doses of Pfizer and Moderna. According to the facility’s owner – Maple Leafs Sports and Entertainment Ltd (MLSE)– 26,771 COVID-19 shots were administered on Sunday. MLSE said the previous record for a single day in North America was thought to be more than 17,000 shots at The Texas Motor Speedway back in April. Canada’s vaccination rate got off to a slow start compared to its southern neighbours with only 3% of residents fully vaccinated by the middle of May. However, vaccinations have picked up steadily and government officials hope to have 75% of Canada’s population fully vaccinated by late July or August.
- In the United Kingdom – Health Secretary Matt Hancock stepped down from his position over the weekend in a way British tabloids would even have a hard time making up. Hancock quit on Saturday after it was revealed he was caught breaking COVID-19 rules by kissing and embracing an aide in his office. The move enraged colleagues and the public who have been living under lockdown and is the latest scandal to rock the Boris Johnson government – which has seen many – since the pandemic began in March 2020. On Friday, The Sun newspaper published photos of Hancock embracing a woman who he had appointed to a taxpayer-funded role to scrutinize his department. “Those of us who make the rules have got to stick them and that’s why I’ve got to resign,” said Hancock via a video message on Twitter.
- In a race against the Delta variant, Germany is expecting drugmaker Moderna to deliver its COVID-19 vaccines faster than expected over the coming months. Speaking over the weekend, German health minister Jens Spahn said the supply of vaccines will soon outstrip demand, which will allow it to offer shots to passers-by in city centres and places of worship. Moderna will increase its deliveries to 1.33 million doses a week from July; up from the 733,000 previously expected, raising the figure to 2.57 million in August and 2.95 million a week in September. Germany has 53% of its population with a first dose of a COVID-19 vaccine and 35% are fully vaccinated.
- The United Arab Emirates (UAE) have confirmed most of the new coronavirus infections in the Arab state are from the more infectious variants. UAE, with a population of about nine million, had one of the world’s fastest vaccination campaigns, but cases have risen to more than 2,000 new infections a day and over the weekend, suffered its highest single-day death toll since March. The National Emergency Crisis and Disaster Management Authority (NCEMA) said the increase in deaths was due to the Beta variant, first discovered in South Africa and the Delta variant, first discovered in India.
- Australia’s health authorities are claiming the country is in its most dangerous stage since the pandemic earliest days because of several COVID-19 clusters now circulating. Sydney to the east and Darwin in the north were in lockdowns on Monday. Perth in the west has made masks compulsory for three days and warned a lockdown could follow after a resident tested positive after visiting Sydney a week ago. Meanwhile Brisbane and Canberra have or will soon make wearing masks compulsory. Australia has had to depend on fast and harsh lockdowns to contain clusters of cases as the nation’s coronavirus vaccine rollout has been slow with only 5% of the population fully vaccinated. Sydney’s two-week lockdown began on Monday.
Covid-19 – Due Diligence And Asset Management
KKR Dealmakers Pause for Breath After $60 Billion Pandemic Binge
Brief : A relentless global deal binge totaling nearly $60 billion has KKR & Co.’s leadership taking stock -- and a breather. When the pandemic hit, shortly after Philipp Freise and Mattia Caprioli took over new roles in Europe, the buyout house started deploying as much capital as possible while most rivals held back. More than a third of the total was spent in Europe, and KKR started working on a new fund dedicated to the region just a year after closing the last one. The breakneck pace of deals took its toll. KKR is now echoing the gentler tone adopted by investment banks like Goldman Sachs Group Inc. after employees balked at the work-till-you-drop culture. The biggest challenge to high performance in the buyout industry is “constant exhaustion,” Freise, 47, said in an interview. “As new-generation leaders, our job is to really temper,” said the German dealmaker, who’s co-head of KKR’s European private equity business with Caprioli. “It is almost like conducting an orchestra where the whole thing has gone into ‘Ride of the Valkyries’ -- we have to slow down a little bit to protect the human element from crashing.” The unusually open tone by leaders in the cutthroat buyout industry comes as workplace cultures come under increasing scrutiny and employers seek ways to retain a younger generation of workers.
EU’s Economic Guardians Are Split on Post-Pandemic Strategy
Brief: The European Union’s top economic policy makers are exposing a gulf in their views on how to run the economy after the pandemic. European Central Bank Executive Board member Fabio Panetta said on Monday that monetary officials should retain the “unconventional flexibility” they granted themselves during the crisis, keeping borrowing costs low until government spending helps push up inflation. Hours later, his policy-making colleagues Jens Weidmann and Robert Holzmann said the ECB’s emergency powers are temporary and must end once the emergency is over. Panetta also said the ECB should consider retaining the flexibility ingrained in its 1.85 trillion-euro ($2.2 trillion) pandemic emergency bond-buying program when it expires. An older quantitative-easing program is tied to limits on how much of a country’s bonds can be bought.
Global Economic and Earnings Growth is Approaching its Peak. Now What?
Brief: The global economy has recovered from the pandemic sooner than most expected, with diversified investors benefiting from financial markets. But with growth now expected to be at its peak, U.S. asset managers, in particular, must now grapple with new concerns surrounding interest rates, inflation, and valuations. According to Nuveen’s mid-year outlook released Monday, “a booming economy brings with it new opportunities — and risks.” While asset growth improved from 2020, yields are still “frustratingly” low, which means returns may be fewer and far between in the second half of 2021. Moving into the second half of the year, the asset manager recommended clients consider differentiating between short- and long-term inflation risks and diversifying income and asset classes. “Both the level of output and its first derivative (growth) remain quite strong. It’s the second derivative — the change in the rate of growth — that has started to fall, presenting a challenge for investors and policymakers alike (not to mention those charged with making economic forecasts),” the report stated.
Asset Managers Mull Upgraded US Inflation Expectations
Brief : Asset managers are weighing the impact of upgraded inflation expectations on financial markets, as the Federal Reserve moves up its timeline for interest rate hikes and bond tapering. An array of buoyant economic data from the US resulted in the Federal Reserve upgrading its inflation expectations and moving up its timeline for raising interest rates, with the first hikes now expected in 2023. The Federal Reserve now predicts that inflation will climb to 3.4 per cent this year. This is a marked shift in tone from the FOMC’s meeting in March, which projected 2.4 per cent yearly inflation, and no rise in interest rates until 2024. Earlier this month, Russell Investments found that 70 per cent of fixed income managers expect inflation in the next year will exceed 2 per cent. Meanwhile, average allocations to bonds are currently at a three-year low, according to Bank of America’s fund manager survey in June. US 10-year Treasury yields rose to 1.55 per cent on Friday, twelve basis points higher than the end of last week. BlackRock Investment Institute sees the Federal Reserve’s new guidance as “more balanced”, with two interest rate hikes projected for 2023. “We view this upgrade as the Fed catching up with the restart dynamics.”
Should Real Estate Equities Investors Be Worried About Inflation?
Brief: Inflation, having been off the menu for so long, now seems to be the hottest of topics. How worried should investors be given recent inflation fuelled market wobbles and how can they protect themselves if it does become a problem in reality? One answer could be found in real assets, which generally benefit by economic growth that causes inflation. Certain types of real assets, like property and infrastructure, can also rise in price when their input costs rise, as the replacement cost of building similar buildings or structures rises. However, for most investors infrastructure or commodity investments can be too niche or volatile, and the liquidity mismatch of direct property funds throws up additional risk. As such many investors look to REITs (real estate investment trusts) or funds of REITs for long term capital appreciation, a robust income stream and inflation protection, as rental incomes general include inflation uplifts. Most investors would invest in REITs that focus on commercial property, but more specialist REITs and residential REITs are available.
Property Investors Eye South America Haven in Return-to-Work Bet
Brief: A group of Uruguay’s top real estate investors is planning to raise $165 million to wager that demand for office space is about to take off as foreigners flock to the nation known as the Switzerland of South America. Investors including architect Ernesto Kimelman and construction executive Eduardo Campiglia are seeking to sell hybrid securities through a real estate trust, Fideicomiso Financiero Platinum. The cash raised through the sale will go toward building two office towers and a 98-unit apartment building expected to house locals and newcomers to the nation of 3.5 million people. “We’re in the middle of a region that unfortunately has lots of issues. There are problems in Chile, in Argentina, in Peru. Things aren’t good in Brazil,” Kimelman said in an interview. “That probably means many companies or independent workers view Uruguay as a place” to do business. Wedged between Argentina and Brazil, Uruguay has leveraged its economic and political stability to persuade companies like chemicals producer BASF SE and oil-trading giant Trafigura Group to open local offices. The government is also offering generous tax breaks to attract skilled immigrants, and revive investment and the broader economy.
