Powerscourt

By Powerscourt on 18/01/2021

Powerscourt Coronavirus Briefing – 18 January 2021

ANALYSIS

The equity markets may give a different impression but the pandemic has devastated the global economy – or most of it. The latest indicators emerging from the Eurozone suggest the bloc is heading for a double-dip recession despite unprecedented levels of intervention.

The EU’s €750 billion COVID-19 recovery fund, agreed last year, means that, for the first time, the European Commission will borrow on the markets and disperse grants and loans to the worst affected countries. The hope is that long after the coronavirus crisis has abated, the unprecedented move will buttress the fiscal and economic foundations of the bloc. Meanwhile, the Biden administration has unveiled a €1.9 trillion fiscal stimulus package to combat the effects of the virus. The UK is experiencing its worst recession in 300 years.

Not all countries have been hit hard. According to the Financial Times, China’s economy expanded at a faster pace in the fourth quarter than it did before the pandemic – growing at a rate of 6.3% over the three month period. However, a separate story in the same paper reports that 109 new cases have been detected in Beijing and three other provinces, prompting fears the economic recovery could be halted by further lockdown measures.

Against this backdrop, the benefits of a successful vaccine rollout are clear. Economies cannot begin to recover until restrictions are lifted. But with new strains of the virus, which are much more infectious, sweeping through most countries, the process of opening up economies is tricky.

The UK continues to lead the way among larger developed countries. The Telegraph reports that as of today another 5.6 million adults will be invited to get their jabs, including one million clinically extremely vulnerable people who have been shielding and 4.6 million over 70s in England. Dominic Raab, the foreign secretary, has said that a tiered lifting of restrictions will begin in early spring. The Telegraph is also reporting that mass testing of regions will be considered as part of the roadmap out of the lockdown.

But economic recovery will not reach a sustainable footing until all countries have conquered the virus. Bloomberg is reporting that vaccine disparities could lead to a more dangerous phase of the pandemic as the virus will continue to spread in developing countries that lag behind in inoculation programs. The fear is that the virus could mutate into more potent forms in these countries, which would compromise the immunity built by vaccines in developed countries.

“We cannot leave parts of the world without access to vaccines because it’s just going to come back to us,” said Charlie Weller, head of vaccines at health research foundation Wellcome. “That puts everyone around the world at risk.”

Russia and China are trying to meet the appetite for vaccines among developing countries. Russia’s Gamaleya Research Institute has agreed to sell its Sputnik V vaccines to countries including Algeria, Argentina, Saudi Arabia and Brazil. Chinese manufacturers have signed deals with more than a dozen countries including Bahrain, UAE, Egypt, Phillipines, Indonesia and Hungary.

However, the Sinovac jab has been mired in controversy after Chinese scientists initially claimed that it had a 78% efficacy rate in trials in Brazil, but later clarified that it had a ‘generalised efficacy rate’ of about 50% – marginally above the threshold required for a vaccine to be considered viable.

Dismal US retail figures released on Friday, combined with growing fears that the Biden Administration will not be able to pass its stimulus package through Congress because of Republican Party opposition, triggered a sell off in shares, but markets recovered in overnight trading on the back of much better than expected Chinese growth figures.

 

WHAT ARE COMPANIES SAYING?

Industrials & Transport 

Genus
The leading global animal genetics company, published its trading update for the six months period ending 31 December 2020. Adjusted profit before tax is now expected to be within a range of £47.0 million and £49.0 million, for the first half. Revenue for the period is now expected to be within a range of £285.0 million to £287.0 million. Despite some challenges due to the pandemic, Genus report that high growth in volumes, revenue and adjusted operating profit were achieved across the Groups’ operations by both PIC and ABS.

 

Financial & Real Estate

Baillie Gifford Growth Trust
The investment trust dedicated to investments in United States-based companies, published its results for the six months to 30 November 2020. The US Growth Trust share price and NAV, after deducting borrowings at fair value, returned 50.8 per cent and 53.8 per cent, respectively. This compares with a total return of 11.1 per cent for the S&P 500 Index. Before deduction of loans of £18.7 million, total assets were £810.3 million.

LXI REIT
The real estate investment trust, published its an update on Q1 rent collection and increased Q1 dividend guidance. The Company is said to have continued to actively engage with all of its tenants throughout the pandemic and reports rent collection to date of 96 per cent for the quarter ending March 2021. This figure is calculated on the basis of cash received versus contractual rent due and does not include rent deferrals. Rent collection will increase to 98 per cent following receipt of rent deferrals agreed with tenants. As a result of its robust rent collection, the Board reports that it has today increased its dividend target to 1.46 pence per share for the quarter ending 31 March 2021.

TMT

Spirent Communications
The leading provider of test, assurance, and analytics solutions for next-generation devices and networks, today issues an update for the 2020 year. For the full year, revenue grew by 4 per cent to $522 million, with the expectation of delivering an adjusted operating profit in line with market consensus, which represents strong earnings growth over 2019. Adjusted operating margin has increased to almost 20 per cent from 18 per cent in 2019. Despite market uncertainty caused by the pandemic, cash closed at $241 million, with high cash conversion driven from continued strong working capital management.

 

IN THE NEWS

Full speed ahead with vaccination of over-70s – The Times

Chinese and Russian vaccines in high demand as world scrambles for doses – Financial Times

Mass testing of entire regions considered as ministers signal return to tiers in March – The Telegraph




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