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Our briefing for Thursday, December 16, 2021:
Dec 16, 2021 2:57:33 PM
- Deaths from Covid-19 in the United States surpassed 800,000 on Wednesday, causing officials in the country to ramp up testing as they prepare to face another winter with the virus. A rising number of infections from the new Omicron variant and the still-dominant Delta variant are now being compounded with rising cases of the flu. The common flu, which was nearly inexistant last year due to increased mask wearing and sanitization has now come back even worse this year as restrictions have been scaled back in much of the country. Lori Tremmel Freeman, chief executive officer of the National Association of County and City Health Officials (NACCHO) said on Wednesday that "it's the combination. It's kind of the perfect storm of public health impacts here with Delta already impacting many areas of the country and jurisdictions, we don't want to overwhelm systems more." Nearly 900 people were admitted to U.S. hospitals with influenza in the first week of December, up from 496 in the week previous.
- Canada is currently reexamining a travel ban put in place to stop the spread of the highly contagious Omicron variant. The ban on travelers entering the country from African countries was enacted in November when community transmission of the Omicron variant was first found on the continent. Now that Omicron has spread across Canada and the globe, some experts are calling for a repeal of the ban, stating that is not necessary or effective. “It’s a policy that needs to be revisited,” said Chief Public Health Officer Theresa Tam, “there is an active examination of that situation seeing this virus is in many countries.” Under the current policy, any foreign nationals that have visited the banned countries in the last 14 days are not permitted to enter Canada. Canadian nationals who have recently been in those countries were allowed to fly into Canada but were subjected to more rigorous testing and quarantine protocols.
- France is restricting tourists and business travelers from the U.K. starting at midnight on Friday. The border closures come as Britain has hit a new daily record for Covid-19 infections. The concern stems from the rampant spread of the highly transmissible Omicron variant in the United Kingdom. All visitors coming from U.K. will have to isolate for 7 days, France will also reduce the validity of Covid-19 tests to 24 hours down from 48. During isolation, visitors from the U.K. will have the opportunity to provide a negative test, which will drop their isolation period down to 48 hours. Exemptions will be made from French citizens returning home from the U.K. and for commercial trucking between the two nations. Government spokesperson Gabriel Attal said that the new measures are being put in place to give French citizens more time to receive booster shots, and that “what we need to do is delay [Omicron’s] development in France as much as possible,” he said.
- According to market analytics firm IHS Markit, Britain’s purchasing managers have recorded the slowest amount of growth since the height of the nation’s lockdowns 10 months ago. The service industry has been hit the hardest, with restaurants, hotels and travel related businesses stalling. The Bank of England is expected to make a decision on Thursday on how to combat rising inflation in the country, experts suggest, however, that they may leave interests rates as they are. Chris Williamson, chief business economist at Markit said on Thursday that “the pace of economic growth looks likely to continue to weaken into 2022,” and that “the bigger uncertainty will be on how rising inflation rates both at home and abroad might cause further supply shortages.” Inflation in the country more than doubled the Bank of Englands target last month at 5.1 per cent. High-frequency data posted on Thursday suggests that consumers are being cautious about their spending on credit cards, eating out less and reconsidering holidays.
- The annual RISE tech conference in Hong Kong that was scheduled for March has been cancelled with plans to return in 2023 according to organizers. The conference that features CEO’s, start-ups and investors has been postponed in accordance with China’s Covid-zero policies. The conference was originally set to move from Hong Kong to Kuala Lumpur to give more access to Southeast Asian investors but was moved back to Hong Kong among concerns over the growing number of cases in Malaysia. However, with border closures and strict quarantine measures put in place in Hong Kong, it was no longer feasible for conference organizers to host such a large-scale event successfully. At the moment, most travelers entering Hong Kong must quarantine for three weeks on arrival, and those coming from countries with high numbers of the Omicron variant may have to spend one of those weeks in government-run camps.
Covid-19 – Due Diligence And Asset Management
Partner Insight: Can we build resilient income in the post-pandemic world?
Brief: The economic shock of Covid-19 has left the world's largest economies grappling with rising inflation on the one hand and lower-for-longer interest rates on the other, as governments strive to control high levels of debt. At the same time, monetary and fiscal support during the pandemic has left many traditional income-generating assets with high valuations, making it harder for investors to find reliable income sources at a reasonable price. According to Alfred Murata, managing director and portfolio manager at PIMCO, fixed income investors today find themselves in a more difficult position than during the spring of 2020, when credit valuations were at attractive levels. In contrast, the current environment requires a delicate balancing act between achieving an attractive level of yield and going too far up the risk spectrum. "The more generic, plain vanilla assets have seen a lot of support from central banks over the past year, so the valuations of these assets are not as compelling today," explains Murata. "You have to work harder to generate attractive returns in this environment."
Unemployment drops as COVID lockdowns end, employers snap up staff
Brief: Australia's unemployment rate has dropped sharply after lockdowns, with employers scrambling to hire staff. Official ABS data shows the unemployment rate dived from 5.2 in October to 4.6 per cent in November, after lockdowns had ended in New South Wales, Victoria and the ACT. The drop came despite a massive increase in the percentage of people in work or looking for it, with a whopping 366,100 extra people estimated to have been in work last month. AMP Capital chief economist Shane Oliver said the participation rate of 66.1 per cent marked a big difference between the post-COVID recovery in Australia and the US. "The near-record participation rate contrasts with that in the US where it is running well below pre-COVID levels," he noted. Other labour market indicators were also positive, with underemployment dropping from 9.5 to 7.5 per cent and hours worked up 4.5 per cent. Dr Oliver said all the indications were that the current jobs recovery would continue, with "businesses having to scramble for workers in some industries and not wanting to let them go". "Strong levels for job postings and hiring intentions point to a continuing tightening in the labour market," he added.
Seward & Kissel Side Letter Study Shows Allocations Made to Both Mature and Newer Managers Amid Pandemic
Brief: As the COVID-19 pandemic continued to sow uncertainty and volatility in the financial markets over the last year, participants in the hedge fund industry took refuge in familiar deal terms and experienced managers, but also hedged their bets and allocated to newer managers, according to a study by the law firm Seward & Kissel LLP that examines the industry’s use of side letters. The Seward & Kissel 2020/2021 Hedge Fund Side Letter Study, released today, revealed strong side letter activity in the midst of the pandemic, with investors continuing to allocate funds to mature managers, whose average regulatory assets under management in the study increased from $5.1 billion last year to $6.3 billion this year—while still engaging with newer managers (those with less than two years of experience), as it appears investors have become comfortable with the "new" fundraising environment and leveraged virtual manager and diligence meetings. The study also indicates that in a return to past form, funds of funds once again became the most common type of side letter investor, reversing a downward trend of recent years. Additionally, the consistently popular fee discount clauses continued to be a common term used in side letters, tied this year with most-favored-nation clauses.
Most hedge funds set for permanent hybrid working, industry study finds
Brief: Most hedge funds are now moving to a permanent hybrid working environment as a result of the Covid-19 pandemic, but concerns over team-building, collaboration and decision-making remain, as more managers look to expand their product offering into new areas and strategies, a wide-ranging new study published by the Alternative Investment Management Association and KPMG has found. AIMA, the global industry trade association for hedge funds, and KPMG quizzed 162 hedge fund managers collectively representing USD1 trillion in assets under management – roughly quarter of the total global industry assets – on how their businesses are pivoting to the new working environment that has resulted from the coronavirus pandemic. The report, titled ‘Accelerating out of the Pandemic’, follows last year’s survey, ‘Agile and Resilient’, which gauged how managers of all sizes were grappling with the range of challenges thrown up by the crisis. For this year’s report, respondents were questioned on how they are now optimising collaboration within the challenging hybrid work environment, the ways in which they are navigating the virtual capital raising process, and what new investment opportunities are emerging from the events of the past two years, among other things.
SEC Proposes Amendments to Money Market Fund Rules
Brief: The Securities and Exchange Commission today voted to propose amendments to certain rules that govern money market funds under the Investment Company Act of 1940. In March 2020, growing economic concerns about the impact of the COVID-19 pandemic led investors to reallocate their assets into cash and short-term government securities. Prime and tax-exempt money market funds, particularly institutional funds, experienced large outflows, which contributed to stress on short-term funding markets. The Commission’s proposed amendments are designed, in part, to address concerns about prime and tax-exempt money market funds highlighted by these events. “Together, these amendments are designed to reduce the likelihood of runs on money market funds during periods of stress,” said SEC Chair Gary Gensler. “They also would equip funds to better meet large redemptions, addressing concerns about redemption costs and liquidity. Given the broad reach of short-term funding markets, these proposals speak to our remit to maintain fair, orderly, and efficient markets.”
