Economic & Political Roundup
Kindly sponsored by Allianz
A collation of recent insights on markets and economies taken from the comments made by chairmen and investment managers of investment companies – have a read and make your own minds up. Please remember that nothing in this note is designed to encourage you to buy or sell any of the companies mentioned.
March 2020 will be remembered as the month covid-19 progressed from mainly disrupting China to the most severe global pandemic in a century.
For stock markets, the problem was compounded by the collapse in the oil price following a falling out between Saudi Arabia and Russia. Bond yields have been quite volatile but most developed world government bond yields have fallen.
These exceptional times have compelled many investment companies to release RNS updates on the impact of covid-19 on their business. This month’s roundup has been expanded to integrate these updates, with the date of release also included, given how fast the situation has been changing. Please refer to the attached PDF for a comprehensive version of the commentary.
The usual collation of commentary from full-year and interim results released over the month follows this section. Content from the results section that specifically focuses on covid-19 has been brought forward to this ‘briefings’ section.
|wdt_ID||Exchange Rate||3/31/2020||Change on month %|
|1||GBP / USD||1.24||-3.20|
|2||USD / EUR||0.91||-0.20|
|3||USD / JPY||107.76||-0.10|
|4||USD / CHF||0.96||-0.70|
|5||USD / CNY||7.10||1.50|
|wdt_ID||Indicator||3/31/2020||Change on month %|
|3||US Tsy 10 yr yield||0.73||-36.80|
|4||UK Gilt 10 yr yield||0.34||-24.00|
|5||Bund 10 yr yield||-0.50||-18.70|
Biotechnology and healthcare
Paul Major and Brett Darke, managers of BB healthcare – 20 March:
“It is vitally important that we all remember this disease has a limited impact on the vast majority of people It appears more lethal than seasonal flu, but we would argue it is currently impossible to say with any confidence how much worse it is due to the patchy nature of testing.”
“One town in Italy (called Vo) tested its entire population in late February and found a 3% positivity rate, with 50% of the positives being asymptomatic. This would imply there are >2.5m cases in the country as a whole.”
James Goldstone, manager of Keystone – 27 March:
“Significant value has now emerged in many shares and attractive investment opportunities exist for those with a long-term horizon”
JPMorgan Smaller Companies – 25 March:
“If, however, the rest of the world does not recover from the covid-19 impact at the rate that China appears to have, then all markets, including the UK, will continue to struggle.”
Polar Capital Global Financials – 31 March:
“Today the banking sector is significantly better capitalised than it was in the years leading to the global financial crisis and regularly stress tested by its regulators to ensure it can withstand significant shocks.”
TwentyFour Select Monthly Income – 30 March:
“Forced and indiscriminate has created the opportunity to source assets that have been otherwise unavailable to investors for almost a decade.”
UK Mortgages – 27 March:
“We do not know at this point how future cash flows will be affected by mortgage holidays or other forms of relief that will be offered to distressed borrowers.”
TwentyFour Income – 23 March:
“European ABS have lagged behind the volatility seen elsewhere principally as market participants believed that the direct link to fundamental risk in European ABS remained weak.”
Rhys Davies, manager of City Merchants High Yield – 20 March:
“Cash is king and those that can invest are able to name their price.”
AVI Japan Opportunity – 20 March:
“The Japanese system is built on cash for a rainy day. Japanese cash-rich companies can withstand better than most and will undoubtedly survive the turmoil.”
Baillie Gifford Shin Nippon – 17 March:
“An ageing population coupled with a shrinking workforce would on the face of it, be a huge worry. Japan, however, has been alert to these changing trends for some time now and has embraced what is known as the ‘silver market’ with enthusiasm.”
Ashoka India Equity Investment – 18 March:
“In a post-covid-19 environment, Indian manufacturing could be a key beneficiary as the world looks to diversify parts of the supply chain from China.”.
VinaCapital Vietnam Opportunity – 27 March:
“Covid-19 could knock nearly 1% off Vietnam’s GDP growth forecast for this year.”
Ed Kuczma and Sam Vecht, from the management team at BlackRock Latin American – 27 March:
“Our base case is that covid-19 will be under control within the next few months and that China will then launch significant stimulus to reverse the negative impact on the economy.”
Amedeo Air Four Plus – 17 March:
“Almost all airlines globally have been severely impacted by the reduction in passenger traffic.”
International Public Partnerships – 23 March:
“Covid-19 has to date had no impact on the company’s cashflow from its investments.”
3i Infrastructure – 20 March:
“To date, any operational impact has been limited and, currently, all of our portfolio companies are maintaining continuity of service to their customers.”
GCP Infrastructure – 20 March:
“Substantially all of the company’s investments are availability-based infrastructure assets and therefore are not currently expected to be materially impacted by the reduced demand for goods and services.”
Renewable energy infrastructure
Foresight Solar – 27 March:
“We anticipate that there may be a further short-term reduction in power prices due to an anticipated drop in demand, however power prices are forecast to improve over the medium term.”
Bluefield Solar – 25 March:
“Over 60% of the company’s revenues are regulated and non-correlated to market based power prices, increasing in line with RPI and with an average duration remaining of 15 years. The company has 94% of its revenues contracted until the end of the current financial year”
Commodities and natural resources
Evy Hambro and Olivia Markham, representing the management team at BlackRock World Mining – 25 March:
“On the demand side, we do not anticipate a hard-landing type event in China and we have been encouraged by stimulus measures beginning to feed through into improvements in some economic data points.”
ICG Enterprise – 26 March:
“Private equity’s active ownership model allows it to react quickly to issues.”
Oakley Capital Investments – 25 March:
“Over 70% of the portfolio companies operate a subscription-based or recurring revenue business model and are therefore less vulnerable to temporary declines in customer demand.”
Insurance and reinsurance
CATCo Reinsurance Opportunities – 23 March:
“While we do not expect any adverse impact on actual investment results, it may be possible that there may be an adverse impact on the company’s progress on its stated intentions to return capital to investors as quickly as possible.”
Property – debt
Starwood European Real Estate – 20 March:
“In the current market, the company is particularly focused on its exposure to hospitality, which was 31.4 per cent of invested assets as at 31st December 2019, and expects to see a negative impact in operational performance generally across the hospitality sector.”
Property rest of the world
Macau Property Opportunities – 30 March:
“Visitor arrivals to Macau have declined by 57% year on year (YoY) and gross gaming revenue (GGR) has declined by 50% YoY during the first two months of this year.”
“Macau’s health bureau officials appear cautiously optimistic about Macau infection rates, believing that new imported cases may be peaking,”
Click on the link at the bottom of the page to access the full report.
Kindly sponsored by Allianz
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