ALEX BRUMMER: Present panic is a consequence of Covid unknowns – but it also shows how far markets strayed from the fundamentals during a pandemic that still shows no real end

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Until more is known about the latest COVID version, it is prudent to temporarily suspend air traffic to Southern Africa.

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The reaction in the financial markets is overwhelming.

It is not March 2020 when there was no testing, no PPE, very few ventilators and no innovative immunology treatments that had come to the fore.


Hope: The lessons of the pandemic contain the swiftness with which the life sciences industry and drug regulators can move forward in the face of disaster

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The lessons of the pandemic are swift in the speed with which the life sciences industry and drug regulators can move forward in the face of disaster.

The negative impact on aerospace and hospitality stocks, which have caught a large dollop of new equity and debt in Covid-19, is understandable. Anything that disrupts airline operations hurts their ability to borrow and reward investors for patience.

The real story is the extraordinary bull market, which has seen the S&P 500, Wall Street’s biggest measure, double in value. Compared to that benchmark, the Dow Jones rarely registers a sharp decline.

In the UK, the Lagarde FTSE 100 managed to crawl back to pre-Covid levels prior to the infiltration of the latest version. With the boom in equities came what the late Harvard economist Kenneth Galbraith called a ‘bezel’. Current manifestations include the boom in Special Purpose Acquisition Vehicles (SPACs), which has attracted £72 billion of investment and crypto-currencies. Before the price of bitcoin fell on ‘Red Friday’, the price reached $60,000.

A prominent US investment banker on a Thanksgiving trip to London noted that the true value of bitcoin is closer to $60.

It hasn’t stopped people from doing business and making fortunes. It is the people who are left behind who will reap the bitterest harvest just like those plundered and shredded subprime mortgages in financial trouble.

What is certain is that bull markets, driven by low interest rates and bond buying, do not last forever. The latest frenzy in the hunt for safe haven saw money flow from stocks into government bonds, reducing yields on US Treasuries, Japanese government bonds, gilts and European bonds.

Given that bond market rates often set the pattern for official interest rates, the uproar may discourage central banks from acting swiftly in the fight against inflation.

Energy prices have been a major factor behind the rise in the cost of living. It has long been a dispute that oil markets are imperfect and are attributable to speculation. Brent crude fell 5 per cent in fresh trade to indicate that higher prices are not solely about overcrowded tankers and refineries at sea.

The current panic is a result of the unknown coronavirus. But it also shows how far the market has deviated from fundamentals during a pandemic that still shows no real end.

ringing change

KKR’s bid for Telecom Italia is hard to ignore. It is one of Europe’s largest public-to-private deals, with a title value of £9 billion, but actually worth £28 billion when the debt pile is taken into account. Italian Prime Minister Mario Draghi, formerly a Goldman Sachs banker, is keen on a deal on the grounds that private equity can do no bad in running a shameful company allegedly involved in dodgy Serie A football deals.

Under KKR, the plan is that the infrastructure arm, the equivalent of BT’s Openreach, will exit with the Rome government taking a stake. The obstacles are formidable. Right-wing parties dislike the idea of ​​Telecom Italia falling into the hands of foreign private equity sharks. And French billionaire Vincent Bollor of Vivendi, the company’s biggest investor, thinks it’s being sold cheap.

Another French billionaire, Patrick Drahi, has yet to play his hand, having snatched 12 percent of BT in June of this year.

Had he had to bid full, he too would have been caught in political hurdles.

shopping spree

British real estate’s grand dame, Land Securities (LS), is making some big bets on destination retail. Property Bible Easy Reports is looking to spend £600m on LS Nouven, which owns the Designer Brands retail park in Bridgend and the Cheshire Oaks shopping center in Ellesmere Port.

It is also seeking to buy out the Lendleys minority in Kent’s Bluewaters.

The online revolution, the shock of COVID-19 and business rates haven’t broken LS CEO Mark Allen’s confidence in in-person shopping in the future.


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