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Our briefing for Tuesday July 6, 2021:
Jul 6, 2021 4:35:46 PM
- As the United States get back to work after their Independence Day long weekend, President Joe Biden’s administration is looking to do the same against the coronavirus. After failing to reach his own vaccination goal for the Fourth of July, President Biden is having federal, state and municipal health officials narrow its focus on boosting vaccination availability in places such as doctor’s offices and work settings. CNBC also reported the Biden team is looking to increase vaccinations for 12–18-year-olds before they head back to school in the fall. According to the Centers for Disease Control and Prevention (CDC) latest data, currently 157 million people in the country are fully vaccinated, which is less than half of the total population.
- In Canada, border restrictions started to loosen on Monday, but the federal government remains tight-lipped on when further reopening will happen. As of July 5th, Canadians and permanent residents who have completed their two doses of a COVID-19 vaccine approved for use in Canada are now able to forego the 14-day quarantine. The quarantine requirement had been in place since March 2020. Despite this, the travel restrictions between Canada and the United States preventing all non-essential trips are to remain in place until at least July 21st. When pressed by reporters on Monday on when more border restrictions would be loosened, Prime Minister Justin Trudeau would only say that steps toward reopening the longest undefended land border in the world would be rolled out over the next few weeks.
- United Kingdom Health Minister Sajid Javid is making plans to get the country back to normal even though admitting on Tuesday that new coronavirus cases could rise to 100,000 a day over the summer. The number comes as the country continues to prepare to relax most of its existing pandemic rules on July 19th. On Tuesday, Javid announced a plan that as of August 16th, “anyone who is a close contact of a positive case will no longer have to self-isolate, if they have been fully vaccinated.” Javid also noted the same rule would apply to those under the age of 18, who are not currently being vaccinated.
- Israel and South Korea have agreed on a COVID-19 vaccine swap deal. Under the deal, Israel will send 700,000 coronavirus vaccine doses to South Korea this month to inoculate more of its citizens. South Korea will reciprocate in September, sending the same number of doses to Israel. The Prime Minister for Israel, Naftali Bennett, noted the deal as being win-win and that the agreement would “reduce the holes” in the vaccine’s availability. Both countries are experiencing a surge in new infections but are in much different stages of their vaccination campaign due to the size of each country. South Korea has only administered first doses to 30% of its population while Israel has fully vaccinated 5.3 million of its population of 9.3 million.
- Australia and China are in yet another political conflict – this one over COVID-19 vaccine diplomacy. Australia denied on Tuesday the allegations from the Chinese government and state media that it was interfering in a rollout of Chinese vaccine in Papua New Guinea. In March, Australia became the first country to provide Papua New Guinea – a former Australian colony and the country’s nearest neighbour – COVID-19 vaccines. Just a few weeks ago, the Papua New Guinea government accepted 200,000 doses of the Chinese-made Sinopharm vaccine. Chinese newspaper, the Global Times accused Australia of “planting Australian Consultants” in Papua New Guinea to “undermine China’s vaccine cooperation with Pacific Island countries.” Australia and China’s relationship has continued to deteriorate since last year after Australia called for an independent investigation into the origins of and responses to COVID-19.
- Brazil’s President Jair Bolsonaro popularity has fallen to its lowest level since assuming office, according to the latest poll. The outspoken leader of Latin America’s most populous country has seen his approval rating plummet to 34%, down from 44% in February, according to an MDA poll published on Monday. Bolsonaro’s weakening position is due to a slow COVID-19 vaccination campaign and more than half a million deaths due to the pandemic. The situation only got worse late last week for the president when Luis Miranda, a government-allied lawmaker, said he had personally warned Bolsonaro about possible irregularities in the purchase of vaccines. A Supreme Court justice has now authorized an investigation into the case.
Covid-19 – Due Diligence And Asset Management
Credit Markets May Not Be So Forgiving Post-Pandemic
Brief : Investors looking to make a buck on corporate distress can only hope the post-pandemic world is more accommodating. Rock-bottom interest rates, a reopening economy and yield-starved investors mean all but the most-troubled businesses have managed to borrow their way out of trouble. Credit markets may not be so friendly if the projections underlying that borrowing prove too rosy once post-Covid results come out, according to Phil Brendel of Bloomberg Intelligence. “The market will shift from pricing on projections and start looking more at actuals,” Brendel said in an interview. “We’re at credit bubble levels of distressed debt. So credit markets are vulnerable to a significant correction.” The pile of distressed debt outstanding, which totaled almost $1 trillion at the height of the pandemic, has sunk to about $60 billion, data compiled by Bloomberg show. By one measure, the proportion of high-yield bonds outstanding that is trading at distressed levels is the lowest since the run-up to the 2008 financial crisis, Brendel said.
FCA says Firms’ Assessments of Value Lack Credibility
Brief: Fund management firms in a sample study were not implementing rules that should demonstrate how much value they provide to clients. The Financial Conduct Authority (FCA) said most of the 18 firms it reviewed had not implemented Assessment of Value (Avon) arrangements that met FCA standards. Avon rules were brought into force in 2019 and require firms to justify their fund fees by demonstrating value based on certain criteria such as performance, costs and savings from economies of scale. The findings will be a disappointment to the FCA which has increased scrutiny of asset managers in recent years and whose Avon regime is expected to set the standard elsewhere in Europe. However, the firms have escaped any tough regulatory action, such as fines. Reporting on its review, which happened between July 2020 and May 2021, the FCA said “too many” of the fund managers often made assumptions that could not be justified when challenged by the regulator, and that this undermined the credibility of their assessments. Many firms did not consider what the fund’s performance should deliver when set against the investment policy, investment strategy and fees.
Number of H1 2021 UK IPOs Exceeds Number for the Whole of 2020
Brief: The UK IPO market has continued its resurgence throughout H1 2021 with the number of new listings on the London Stock Exchange already exceeding the number that listed in the whole of 2020, according to research from law firm Pinsent Masons. As of 28 June 2021, 45 companies have listed on AIM and the Main Market and six more say they intend to list this year. That compares to 31 companies that listed in the whole of 2020. There was more IPOs in Q1 2021 (20) on the London Stock Exchange than in any previous first quarter of the year since 2007. Companies have been eager to exploit the renewed investor optimism so far this year. Healthcare companies (6), tech companies (11) and online retailers (7) make up 53 per cent of the businesses to have listed so far in in 2021. Companies from those sectors see now as an ideal time to float as, in many cases, Covid has provided a strong tailwind to help their sales growth. Julian Stanier, head of Corporate Finance at Pinsent Masons says, “This has been the busiest period for London Stock Exchange IPOs for about 15 years.
Schroders Institutional Investor Study: Optimism Surges for Investment Returns
Brief : The annual Schroders Institutional Investor Study, which polls 750 industry professionals in 26 locations across the globe, showed an average expectation return of 6.4%, up from 5.6% a year earlier. Almost half of respondents estimate that their average annual total return will be above 6% over the next five years, with 13% expecting returns of more than 9%. These expectations are higher than last year, when only 35% of global investors thought they could return over 6% and 5% believed they could top 9%. Keith Wade, Chief Economist, said: “Clearly, confidence is rising. This is due to a combination of vaccine success, increasing consumer demand across the globe, and indications that the global economic recovery from Covid-19 could be relatively swift. “However, expectations are even higher than before the pandemic hit, indicating a more sustained shift in confidence. It could be that even professional investors are being swayed by the strong real returns achieved by both equity and bonds in the past decade. Understandably, they’re feeling more optimistic. The reality is that, to achieve decent returns, investors will need to navigate a number of challenges, from low rates to demographic shifts to technological disruption.
European Buyout Industry Bounces Back to Pre-Crisis Levels After Portfolio-Focused Pandemic Hiatus
Brief: The European private equity industry rebounded strongly in the 12 months to 30 June 2021 following the initial shock of Covid-induced lockdowns, according to the first provisional half-yearly data announcement from CMBOR, the Centre for Private Equity and MBO Research, since its re-establishment within Nottingham University Business School last month with support from Equistone Partners Europe. CMBOR’s latest report has found that the volume of private-equity-backed acquisitions in Europe fell to its joint-lowest level since mid-2009 during the first wave of the pandemic. But after just 102 transactions were completed in Q2 2020, the industry quickly recovered to pre-Covid activity levels. The 791 buyouts that took place in the past 12 months, with a cumulative value of EUR116.6 billion, exceed the corresponding figures for 2019 (716 deals with an aggregate value of EUR112.4 billion) and approach the post-2008 high-water mark set in 2018 (811 deals valued at EUR124.7 billion). The resurgence in deal-making since Q3 2020 was also in evidence in exit activity, as private equity investors made 354 realisations totalling EUR98.9 billion in value, compared to 360 exits with a value of EUR73.7 billion in 2019. This too followed a decade-low exit volume of just 46 sales in Q2 2020.
Asset Managers’ Dash to Digital Accelerates Amid Rising Pressure From Clients
Brief: Asset management firms are accelerating their digital transformation, with almost half planning to boost their digital spend in the coming year. The push to digitalise been driven by the rise of low-cost passive investing and digital-first challenger banks, which have squeezed the margins of traditional asset managers. Alpha FMC recently surveyed 36 asset managers with a collective USD25 trillion in assets under management, and found that almost all, 97 per cent, regard going digital as a top priority. Most managers, 69 per cent, are already undergoing or recently completed a significant digital transformation. However, most believe they are not yet fully meeting their clients’ and customers’ ever-shifting digital expectations. Nearly half of asset managers, 45 per cent, plan to increase spending by between 5 and 20 per cent over the next year. This is on top of budget rises over the last year, as the coronavirus pandemic forced all areas of business to be conducted online, remotely. “Across the board we have seen managers progress well in shifting to digital and remote ways of delivering services to clients, to respond to the global pandemic,” says Kevin O’Shaughnessy, head of Digital and Agile Transformation at Alpha FMC. O’Shaughnessy says that asset managers are now thinking about digital as a “core and critical function within the firm”.
