Reddit, Gamestop and the short squeeze: Market Impact
The potent combination of a pandemic, people sitting at home on their phones and unspent stimulus cheques all fed into the GameStop market frenzy. He discusses what’s next.
Reddit GameStop and the Short squeeze: Market Impact
[Soft music plays]
[Craig Jerusalim, Portfolio Manager, Canadian Equities, CIBC Asset Management]
Reddit and message boards in general are nothing new. However, when you have a pandemic
on your hands and masses of bored people sitting at home on their phones, combined with
generationally low interest rates, zero cost fractional share purchases, and stimulus cheques
sitting in bank accounts, we had the perfect scenario for the gamification and exploitation of
targeted loopholes.
[CRT televisions are piled on top of each other. One turns on and images of the Wallstreetbets
reddit page, a GameStop storefront, skyscrapers, a man in casual cloths looking at his phone,
and compute-generated imagery of stock market data.]
Now, don’t be fooled. This isn’t quite the David versus Goliath story that it’s made out to be in
the media. It’s more likely a case of David plus Goliath versus Goliath. As there were likely many
sophisticated hedge funds and professionals on both sides of the short squeeze.
[The prisoner’s dilemma]
Now, the speculative frenzy in GameStop and AMC has already begun to abate, just as we
assumed it would. Because in the end it comes down to fundamentals. But more importantly
than fundamentals it comes down to human nature. This was your classic game of prisoner’s
dilemma.
[Images of men in casual cloths looking at their phones. Images of stock market data.]
If every retail investor that had bought those stocks held onto their long positions and
continued to buy more, then theoretically, they could have continued drive the stocks higher
and send the shorts running for the exits.
[compute-generated imagery of a laptop keyboard with the word, “Exit” on one of the keys.]
But the incentive structure is such that no one wants to be left holding the bag. So, greed and
self-interest dictate the run for the exits.
[Ramifications?]
So, what are the ramifications?
[1. Short sellers will be less vocal in their positions.]
Firstly, short sellers will be a less vocal in their positions so as to not draw attention by retail
mobs.
[2. This is a sign of froth in the market]
Second, this is yet another signpost along with SPACs and Bitcoin of froth in the market,
which has to be monitored, as well as the potential that these actions erode confidence in the
market, which could hurt overall sentiment.
[A close-up of gold coins]
[3. Expect additional regulations to come into effect after the fact]
And finally, three. Do expect additional regulations to come into effect after the fact.
But other than those, and a little bit of excitement, markets will move on to the next big thing
like they always do. And GameStop will become a tiny footnote in history.
[Soft Music plays]
[The views expressed in this video are the personal views of Craig Jerusalim and should not be
taken as the views of CIBC Asset Management Inc. This video is provided for general
informational purposes only and does not constitute financial, investment, tax, legal or
accounting advice nor does it constitute an offer or solicitation to buy or sell any securities
referred to. Individual circumstances and current events are critical to sound investment
planning; anyone wishing to act on this video should consult with his or her advisor. All opinions
and estimates expressed in this video are as of the date of publication unless otherwise
indicated, and are subject to change.
®The CIBC logo is a registered trademark of CIBC, used under license.
The material and/or its contents may not be reproduced without the express written consent of
CIBC Asset Management Inc.
Certain information that we have provided to you may constitute “forward-looking”
statements. These statements involve known and unknown risks, uncertainties and other
factors that may cause the actual results or achievements to be materially different than the
results, performance or achievements expressed or implied in the forward-looking statements.]
ELECTIONS & FINANCIAL MARKETS...WHAT HISTORY TELLS US
Insights from Chief Investment Officer, Dave Donabedian, CFA, CIBC Private Wealth Management in the U.S.
Elections & Financial Markets…What history tells us
Dave Donebedian, CFA, Chief Investment Officer, CIBC Private Wealth Management in the U.S.
Hello, this is Dave Donabedian, Chief Investment Officer for CIBC Private Wealth Management. Over the next few weeks, we'll have a series of analyses on the upcoming election. In future, communications will focus on the presidential race itself and potential policy implications that could impact markets next year.
But our first installment today is entitled Elections in Financial Markets—What History Tells US. My objective here is to provide you with some context about the things that matter and perhaps some things that are misleading when factoring politics into investment decisions. Our observation here is no great revelation, it's that historically nothing matters more in politics than the economy. And we're going to look at all of the incumbent presidents who have run for re-election over the last century and ask the question: was there a recession in the two years before that president faced re-election? And if the answer was no, there was no recession, the results are resounding, in every instance the president was re-elected. However, if the answer is yes, there was a recession in the two years leading up to Election Day, five out of six presidents were defeated for re-election. So if you kind of put the yeses and the no’s together, 17 out of 18 times this indicator worked and telling you who was likely to win the election—that’s a 94 per cent rate. And so this would suggest using just this indicator that Joe Biden would likely be elected in November, and that could lead an investor to feel very confident in forecasting the future.
But it's not nearly that simple. We strongly discourage forecasting elections as an investment strategy tool. Just going back to the prior example, our mythical investor could feel very confident that they have a more than nine in 10 chance of knowing who's going to win the presidential election. The problem is to translate that into above average investment returns they’d to be right about a whole bunch of other things and that's what we look at here. They'd have to know not just who wins the White House, but which party was going to control the Senate and what would the stock market reaction be after Election Day? And then also, which sectors within the stock market were likely to be winners and losers based on the new political landscape. Again, you can't just be right about one of these things, you have to be right about all of them. And what are the odds of that? Well, for illustrative purposes, we can do an example here using the concept of joint probability. So first we'll give the investor that they have a 94 per cent chance of forecasting who's correctly, who's going to win the presidency. That's very, very high, obviously. But let's go with it.
And then we'll assume that our very smart investor here has a 60 per cent chance of being right about each of these other three things, independently and discretely. Again, we can use joint probability analysis to see the odds of getting kind of all of these things right. So, yeah, 94 per cent chance of getting the presidential pick right. What are the odds of also getting Senate control? Right. Well, the odds they're so down to just a little more than half. And what are the odds of getting these first three things right? All of them. Well, now you're down to about a one in three chance. And what about your ability to kind of pick the winners and losers within the stock market based on the election getting all four of these things right? You're down to a one in five chance, and that is sort of “are you feeling lucky” time. So we don't actually need to use statistics to think about this. We can actually just go back four years. The conventional wisdom overwhelmingly was that Hillary Clinton would be elected president and in a very, very, very tiny chance that Donald Trump might win the election, that the stock market would have a very negative reaction to that. And that in a Trump presidency, the sector's likely to do the best would be the energy sector and the financial sector.
All of those things proved to be dramatically and overwhelmingly wrong. So actually, history tells us not to base investment decisions on political forecasts. In fact, what may work better is to look at this through the other end of the kaleidoscope. It turns out that the stock market is a pretty good predictor of who's going to win the election. So what you're looking at here is how the S&P 500 has performed for different periods of time, both before and after presidential elections. The light blue bars show the average S&P return when the incumbent wins; the dark bars, when the incumbent loses. So if we look at what's circled here, it's essentially where we are now. It's how the market performs in the three months leading up to Election Day. And we see here that typically when the S&P rises in the three months leading up to Election Day, the incumbent wins and when it falls, the incumbent loses. This is actually worked 87 per cent of the time, 20 out of 23 times. And again, the clock is ticking here. We're a little less than three months away from the election. But I think what may be more important here is to look at post-election results, particularly six and 12 months out. There are a couple of interesting observations here. One is that markets tend to do better six to 12 months out if the incumbent is reelected.
But I think the more important point is that markets are up regardless of who wins over time. And in the same vein, we can see here that that politicians come and go, political movements come and go, but the stock market endures. This looks at the annual returns for the S&P under all forms of power sharing in Washington, going all the way back to the 1930s. So all Democratic control, all Republican control and all of the possible mixes. As a point of interest, if you want to look at what the polls say today and what the betting markets say, the fifth bar over might be most relevant and that would be a Democratic sweep. And this tells us historically, when Democrats have been in charge, so to speak, the stock market has averaged a 9.3 per cent annual gain. Again, I would not use these numbers to forecast the market based on different outcomes. The really important point, though, is that the stock market has shown the ability to rise in all scenarios when given enough time.
So let me conclude with our roadmap for navigating politics and policy in the markets. I think the first point, our first principle here is really important but increasingly difficult for people to do in a polarized society, and that is to eliminate ideological and partisan biases when making investment decisions. We know from history that we've had bull and bear markets with Republican presidents, Democratic presidents, Democratic Congresses, Republican Congresses. So check ideology at the door before making investment decisions. Secondly, we are all subjected to an onslaught of headlines and information overload. Most of it actually doesn't matter to market, so our job is to not get distracted by the noise, ignore the tweets and the canned talking points from politicians and focus on policy changes that matter for the economy and for markets.
And finally, it's important for investors not to get singularly focused on politics or on Election Day. Getting radar locked on only one facet of what drives markets is one of the biggest mistakes that investors make. So it's important to remember all of the usual things that drive markets either higher or lower, things like interest rates, earnings, valuations, that whole basket of factors we call the fundamentals. These are the things that drive financial market valuations over time more than anything that happens on an election day. So as I said at the outset, we'll have more to say on the election in the coming weeks, including a review of potential policy changes that could come about. But for now, I'd like to thank you for your time and wish you a good day.
Will growth stocks continue to outperform?
Amber Sinha reveals why markets outside of North America may present potential for investors and what investors should keep an on eye in the coming months.
Will Growth Stocks Continue to Outperform?
[Soft Music]
[Amber Sinha, Senior Portfolio Manager, CIBC Asset Management]
[Amber Sinha speaks straight to camera, with a computer monitor and a bookshelf behind him.]
So, growth has outperformed value for the better part of the current economic cycle. I would attribute that to a few reasons.
[Blue lines shoot from country to country on a computer-generated image of a globe. A close-up of U.S. $100 bills fanned out.]
One being that ever since the global financial crisis, I would say the global economies never came back to the full extent. So, the economies have been growing but subpar. And that environment tends to favour growth stocks because you know growth is hard to find in that environment.
[An aerial shot of Parliament buildings in Ottawa. The exterior of the old Bank of Canada building. Canadian $100 bills being minted in sheets.]
Another reason I would say is that despite the suboptimal GDP growth—we've gotten a lot of support from the government, whether it's fiscal stimulus or monetary stimulus. So, again, this seems to be an economy that's driven increasingly by stimulus, as opposed to the real engines of GDP growth.
[Computer-generated images of gold bars.]
When we have zero rates growth, stocks tend to do better because their cash flows are far out into the future. And if you did use the discount rate for those cash flows, certainly those stocks were more attractive. So that, I would say, is another sign.
[The lights turn on in a big data server room. A skyline view of Silicon Valley. A stock ticker showing results for Great Britain, Switzerland, Canada and Australia. U.S. and Chinese bank notes piled together.]
And last but not least, I think technology has been really powerful, gets more powerful by the day. The technology companies are dominating virtually every stock market index in the U.S., even in China. And again, technology tends to be a growth sector. So, you put all these three things together, pretty strong case for growth over value in the current cycle. The environment going forward, at least in the near-to-midterm, shouldn't be drastically different from the last 10 years. So, in that sense, I wouldn't see a change in growth over value outperformance going forward.
[Soft Music Plays]
[Will U.S. markets climb higher?]
Given the rapid recovery in the U.S. Market, I would say that the better investment opportunities probably lie outside North America, for now.
[Exterior images of the New York Stock Exchange.]
The U.S. Market has had a fairly strong rebound, we are back to the highs from earlier this year. So, we are basically at higher levels than in December of 2019. And you know should just take a pause and think about it. So, December 2019, there was no recession in sight for what was supposed to be a small problem limited to China.
[A doctor holds up a vial filled with blood infected with COVID-19]
The global economy is in a fairly deep recession. We might be past the peak of the pandemic, but we are certainly not all clear. Should the market be where we were in December 2019? So, that's a little bit of a challenge I think in the U.S. Market.
[Exterior of an EU logo sign in front of a building. The Tokyo skyline at night. The Busan skyline at night.]
When you look outside the U.S., I think the recoveries have been more muted. Whereas the situation on the ground with regards to GDP, with regards to the pandemic, certainly looking better outside North America. So, I think in terms of sectors, I would say that are some powerful themes that have been playing out.
[A time-lapse image of factory automation. A close-up of computer code on the screen of a laptop. A cyber security professional looks at data on four computer monitors. A doctor talks to an elderly patient in a hospital room.]
That COVID has only briefly interrupted: automation, or cybersecurity, or an aging demographic, and all the needs that come with that. These trends have not changed from COVID. In fact, some of them have actually been accelerated.
[A time-lapse image of three doctors in full PPE monitoring a patient in a hospital room.]
When we look at stocks in these areas, which have not fully recovered, because of the market action in those markets, that gives us a place to look for new ideas where the fundamentals remain solid, but we get an opportunity to buy them from the volatility in the stock market.
[Soft Music Plays]
[Key investor takeaways]
As investors we have to be mindful of a few things, one being any resurgence in the pandemic.
[A doctor in full PPE monitors a patient in a hospital room. Hospital staff in full PPE spray down a clear curtain.]
At this point, I think the market is getting comfortable with the fact that we are past the peak and a vaccine is just around the corner.
[Syringes circle a vial on a table. A close-up of four clear vials labeled “COVID-19 TRIAL”.]
I think we should have a little more careful stance on that and watch for cases from around the world. I would also say that stock markets have recovered.
[Stock traders watch monitors on a trading room floor. A trader looks at a graph on a tablet.]
So, we need to take a step back and make sure the exuberance of the market is actually reflected in the real economy as well. There may be some disconnect between the stock market and the economy at this moment. And so, I think that's something to watch out for.
[A close up of badges and stickers that say, “VOTE”.]
And I think just as a general comment, we are in an election year, things could get volatile around that. We want to make sure we know all the risks we are taking in our portfolio.
[The American flag flutters in slow motion. A computer-generated image of the Republican and Democratic party logos.]
We are not getting into any stocks that have a binary outcome, depending on whether the Republicans win, or the Democrats win. Last but not least, I would just say that technology gets bigger and bigger with almost every passing week. So, one has to have a more realistic view on the real value of technology stocks, and some of them are undervalued today and some definitely not. So, I think an extra level of due diligence required, at least in the large cap technology space in the U.S. for now.
[Soft Music Plays]
[This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice, nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this video should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change.
®The CIBC logo is a registered trademark of Canadian Imperial Bank of Commerce (CIBC), used under license. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc.
Certain information that we have provided to you may constitute “forward-looking” statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or achievements to be materially different than the results, performance or achievements expressed or implied in the forward-looking statements.]
Why add gold to your portfolio?
Craig Jerusalim discusses the role of gold stocks in a portfolio and how investors may likely benefit from having some exposure to gold when properly incorporated into a well-diversified portfolio.
Transcript – Why add gold to your portfolio?
[Why add gold to your portfolio?]
[CIBC logo]
[Craig Jerusalim, Portfolio Manager, Canadian Equities, CIBC Asset Management]
I want to try and answer the question ‘where does gold and gold stocks fit into a quality portfolio?’ But first, a bad joke. So a growth manager, a value manager and a quality manager walk into a bar. After four hours of arguing, the only thing that they agree on is that they are all underweight gold. But why is that? I think it has to do with the poor track record gold companies have at destroying shareholder value over long periods of time, plus historically self-serving management teams, a flat-to-falling commodity price for much of the past 30 years outside of the 2005-2011 bull run, as well as most recently. And even during those periods of rapid rising bullion prices like in 2011, many of the majors rewarded managements with lucrative payouts, sunk excessive capital into empire building and mergers and acquisitions, or ploughed earnings back into much needed development projects to sustain their mine lives. But things today are different, both for the sustainability of the commodity price and for the quality of the top senior producers. First, the commodity. So where can gold go? I'd be lying to you and to myself if I said I knew where gold was going.
[Dozens of bars of gold bullion moving along a conveyor]
But the fundamental backdrop is quite supportive. Inflation and more importantly, inflation expectations could finally be on the rise.
[A line graph trending upwards. Several stacks of coins, increasing in height from left to right. A middle-aged man sitting in a dark room, looking at a computer monitor]
Real interest rates are negative, which is a positive due to the lower cost of carry. The U.S. dollar is weak, which lends support to bullion, fiscal deficits, central bank balance sheets and stimulus measures are flooding the market with ample liquidity and supply and demand fundamentals are strong.
[A man typing on a tablet with graphics of the ‘%’ symbol overlaid on top. A pile of worn U.S. bills. The House of Parliament in Ottawa. Capitol Hill in Washington D.C.]
Supply is not growing as large scale deposits are no longer being discovered.
[An open pit mine. An excavation vehicle inside a gold mine.]
And even though jewelry demand is down, industrial use and more importantly, ETF and central bank buying is making up for it.
[A woman with several bracelets, rings, and a gold watch. A circuit board]
[Gold risks]
But what are the risks? There are four main risks that I see: M&A, financial risk, operating risk and geopolitical risk.
[Four main risks for gold: - M&A (mergers and acquisitions) - Financial risk - Operating risk - Geo-political risk]
On the M&A side, mine lives are at generational lows.
[A dark mine shaft]
So once the COVID lockdowns ease, M&A will surely heat up again.
[A mountainous pile of excavation refuse from an open pit min. An overhead view showing all of the vehicles and structures at a mining operation]
This could be a risk or an opportunity depending on the prices paid.
[A man sifting with his hand through a mixture of water and dirt, looking for gold]
As for the geopolitical risk, with higher commodity prices, greed seems to kick in and governments in certain riskier countries begin to demand a higher slice of the pie. On the financial risk side, the risk is actually quite low as balance sheets are quite healthy for the industry as a whole. And operational risk: now, despite the odd misstep, the senior producers are generally good operators and offer better diversification relative to single mine operators.
[Gold positives]
And then we have some obvious positives. Margins are at cycle highs. Generally when bullion prices rise, a good portion of that margin gets eroded by higher commodity prices and higher labor costs.
[A magnified view of a U.S. bill with a gold bar sitting on top of it. Several gold nuggets sitting on ground made of rock. A large industrial mining truck]
But partly due to the COVID situation and partly due to weaker energy prices, much of that top line gain is now falling straight to the bottom line.
[A man driving a large vehicle while wearing a mask. Several oil derricks working on a flat plain at twilight]
And that leads to the next big positive: free cash flow. At spot prices, even if a fraction of the unallocated free cash flow, that is the cash flow not earmarked for exploration or maintenance, gets returned to shareholders in the form of dividends, it would suggest a yield well above the S&P 500 average. So look for companies to continue raising dividends in the near term, similar to how Barrick just increased their dividend 14%. So to sum up, these are still commodity companies, which implies cyclicality, but with a positive backdrop and the increase in quality for many of the senior producers, investors will likely benefit from having some exposure to gold stocks when properly incorporated into a well diversified portfolio. And that's even true for quality portfolios.
[The views expressed in this video are the personal views of Craig Jerusalim and should not be taken as the views of CIBC Asset Management Inc. This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change.
®The CIBC logo is a registered trademark of CIBC, used under license.
The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc. Certain information that we have provided to you may constitute “forward-looking” statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or achievements to be materially different than the results, performance or achievements expressed or implied in the forward-looking statements.]
[The CIBC logo is a registered trademark of CIBC, used under license.]
[CIBC logo]
ELECTIONS & FINANCIAL MARKETS...WHAT HISTORY TELLS US
Insights from Chief Investment Officer, Dave Donabedian, CFA, CIBC Private Wealth Management in the U.S.
Elections & Financial Markets…What history tells us
Dave Donebedian, CFA, Chief Investment Officer, CIBC Private Wealth Management in the U.S.
Hello, this is Dave Donabedian, Chief Investment Officer for CIBC Private Wealth Management. Over the next few weeks, we'll have a series of analyses on the upcoming election. In future, communications will focus on the presidential race itself and potential policy implications that could impact markets next year.
But our first installment today is entitled Elections in Financial Markets—What History Tells US. My objective here is to provide you with some context about the things that matter and perhaps some things that are misleading when factoring politics into investment decisions. Our observation here is no great revelation, it's that historically nothing matters more in politics than the economy. And we're going to look at all of the incumbent presidents who have run for re-election over the last century and ask the question: was there a recession in the two years before that president faced re-election? And if the answer was no, there was no recession, the results are resounding, in every instance the president was re-elected. However, if the answer is yes, there was a recession in the two years leading up to Election Day, five out of six presidents were defeated for re-election. So if you kind of put the yeses and the no’s together, 17 out of 18 times this indicator worked and telling you who was likely to win the election—that’s a 94 per cent rate. And so this would suggest using just this indicator that Joe Biden would likely be elected in November, and that could lead an investor to feel very confident in forecasting the future.
But it's not nearly that simple. We strongly discourage forecasting elections as an investment strategy tool. Just going back to the prior example, our mythical investor could feel very confident that they have a more than nine in 10 chance of knowing who's going to win the presidential election. The problem is to translate that into above average investment returns they’d to be right about a whole bunch of other things and that's what we look at here. They'd have to know not just who wins the White House, but which party was going to control the Senate and what would the stock market reaction be after Election Day? And then also, which sectors within the stock market were likely to be winners and losers based on the new political landscape. Again, you can't just be right about one of these things, you have to be right about all of them. And what are the odds of that? Well, for illustrative purposes, we can do an example here using the concept of joint probability. So first we'll give the investor that they have a 94 per cent chance of forecasting who's correctly, who's going to win the presidency. That's very, very high, obviously. But let's go with it.
And then we'll assume that our very smart investor here has a 60 per cent chance of being right about each of these other three things, independently and discretely. Again, we can use joint probability analysis to see the odds of getting kind of all of these things right. So, yeah, 94 per cent chance of getting the presidential pick right. What are the odds of also getting Senate control? Right. Well, the odds they're so down to just a little more than half. And what are the odds of getting these first three things right? All of them. Well, now you're down to about a one in three chance. And what about your ability to kind of pick the winners and losers within the stock market based on the election getting all four of these things right? You're down to a one in five chance, and that is sort of “are you feeling lucky” time. So we don't actually need to use statistics to think about this. We can actually just go back four years. The conventional wisdom overwhelmingly was that Hillary Clinton would be elected president and in a very, very, very tiny chance that Donald Trump might win the election, that the stock market would have a very negative reaction to that. And that in a Trump presidency, the sector's likely to do the best would be the energy sector and the financial sector.
All of those things proved to be dramatically and overwhelmingly wrong. So actually, history tells us not to base investment decisions on political forecasts. In fact, what may work better is to look at this through the other end of the kaleidoscope. It turns out that the stock market is a pretty good predictor of who's going to win the election. So what you're looking at here is how the S&P 500 has performed for different periods of time, both before and after presidential elections. The light blue bars show the average S&P return when the incumbent wins; the dark bars, when the incumbent loses. So if we look at what's circled here, it's essentially where we are now. It's how the market performs in the three months leading up to Election Day. And we see here that typically when the S&P rises in the three months leading up to Election Day, the incumbent wins and when it falls, the incumbent loses. This is actually worked 87 per cent of the time, 20 out of 23 times. And again, the clock is ticking here. We're a little less than three months away from the election. But I think what may be more important here is to look at post-election results, particularly six and 12 months out. There are a couple of interesting observations here. One is that markets tend to do better six to 12 months out if the incumbent is reelected.
But I think the more important point is that markets are up regardless of who wins over time. And in the same vein, we can see here that that politicians come and go, political movements come and go, but the stock market endures. This looks at the annual returns for the S&P under all forms of power sharing in Washington, going all the way back to the 1930s. So all Democratic control, all Republican control and all of the possible mixes. As a point of interest, if you want to look at what the polls say today and what the betting markets say, the fifth bar over might be most relevant and that would be a Democratic sweep. And this tells us historically, when Democrats have been in charge, so to speak, the stock market has averaged a 9.3 per cent annual gain. Again, I would not use these numbers to forecast the market based on different outcomes. The really important point, though, is that the stock market has shown the ability to rise in all scenarios when given enough time.
So let me conclude with our roadmap for navigating politics and policy in the markets. I think the first point, our first principle here is really important but increasingly difficult for people to do in a polarized society, and that is to eliminate ideological and partisan biases when making investment decisions. We know from history that we've had bull and bear markets with Republican presidents, Democratic presidents, Democratic Congresses, Republican Congresses. So check ideology at the door before making investment decisions. Secondly, we are all subjected to an onslaught of headlines and information overload. Most of it actually doesn't matter to market, so our job is to not get distracted by the noise, ignore the tweets and the canned talking points from politicians and focus on policy changes that matter for the economy and for markets.
And finally, it's important for investors not to get singularly focused on politics or on Election Day. Getting radar locked on only one facet of what drives markets is one of the biggest mistakes that investors make. So it's important to remember all of the usual things that drive markets either higher or lower, things like interest rates, earnings, valuations, that whole basket of factors we call the fundamentals. These are the things that drive financial market valuations over time more than anything that happens on an election day. So as I said at the outset, we'll have more to say on the election in the coming weeks, including a review of potential policy changes that could come about. But for now, I'd like to thank you for your time and wish you a good day.
Low rates & looming inflation: Which bonds look best?
With chronic low interest rates, and global bailout programs spurring inflation concerns, many investors are wondering where to turn for fixed income options as the pandemic continues. Find out which bonds look best as the economy reopens.
Low rates & looming inflation: Which bonds look best?
[Low rates & looming inflation: Which bonds look best?]
[CIBC logo] [Soft music plays]
[Patrick O’Toole, Vice-President, Global Fixed Income, CIBC Asset Management] Well we think interest rates, at least short-term interest rates, are going to stay very low for several years. The Federal Reserve has basically given us guidance that they expect no change in the Fed funds rate, which currently sits at 0 to 0.25%. They see no change in that rate until about 2023. The Bank of Canada seems to be on the same page as the Federal Reserve. They haven't given guidance for as long a period, but the central bank governor here has said he's going to keep interest rates low as well for an extended period. Now, longer-term bond yields, they could rise a little bit over the next 12 months because we do see a better economic recovery than the consensus expects.
So a little better recovery here in Canada on the growth side means you can see a little bit of a drift higher in long-term yields. One thing we're also thinking is going to cap the potential for long-term yields to rise is yield curve control, which may be coming as soon as September in the U.S., where the central bank targets longer-term bond yields and won't allow them to rise above certain levels.
So yield curve control is something the Federal Reserve did from 1942 to 1951, and they basically just decreed that longer-term bond yields, let's say the 10 year government bond yield, at that time, they said, would not be allowed to rise above 2%.
[A black and white image of a U.S. dollar bill. A black and white image of the U.S. Federal Reserve]
And that they would buy bonds, if need be, to push the yield back down below that level if they exceeded two. Now, they didn't have to spend any money to do it; basically them just decreeing it was enough for the market to behave and keep those bond yields below that target level. So that could be coming. We could get an announcement of that as soon as September this year.
[Soft music plays]
[Which bonds likely to outperform?]
Well, bonds always have a place in investors' portfolios, but there's different types of bonds. Government bonds, which we think you always should have some government bonds, for they do tend to perform well when the economy runs into trouble like we saw in the second quarter this year.
[The U.S. Capitol Building. Several other international government buildings]
Interest rates plunge as investors rush for the safety of high quality assets like government bonds. Corporate bonds are something that tends to perform better when the economy's recovering, which we think is going to be the story for the next 12 month period.
[Urban financial centres]
So we think corporate bonds can outperform government bonds to the tune of around 3.5% in the next 12 months. And that's the investment grade side, high quality investment grade corporate bonds. We think high yield’s going to do even better than that, perhaps outperform government bonds by as much as 7%. That's all predicated of course on the economy having a good recovery over the next 12 month period, a little above what the consensus is expecting at the present time. So bonds always have a place, but you should be looking at the mix of bonds you have in your portfolio. You can look at other things as well, like international bonds. That could provide you with some currency exposure, and that could help to augment returns and even lower your overall volatility.
We still think that corporate bonds are the better place to be over the next 12 month period and yes, we've had some strong performance in those in the last couple of months.
[Mid corporate bond and federal bond yields. Chart shows yields of corporate vs. federal bonds from January 2020 to July 2020. In January, the extra yield from corporate bonds was about 1.3%. This rose to as high as 3.5% in March and April, and is down to 1.85% points as of June. Source: FTSE Debt Capital Markets as of June 30, 2020.]
But if you look back at where we were at the end of 2019, the extra yield you get on corporate bonds above government bonds was about 130 basis points or 1.3%. That went to as high as 3.5% at the peak of the panic and is down to about 185 basis points. So there's still room for further compression or for that gap to narrow the next 12 months. And that would allow corporate bonds to outperform government bonds. The high-yield sector, we think, has even better prospects. The extra yield that those offered was only about 350 or 3.5% at the end of 2019. That went out to over 1000 basis points or 10 percentage points at the peak of the panic and is down to just above 500 basis points now. So there's still room for those spreads to compress further and allow high-yield bonds to outperform both investment grade and government bonds in the next 12 months.
[Soft music plays]
[Defaults ahead?]
Defaults are always something to be cautious of when you have an episode like we have now, but the bond market tends to be shoot first and ask questions later, and we've already seen a strong response from the bond market given the pandemic. The second quarter of 2020 had I think it was the second highest default rate in history, around a little over 6%, or running over 6% year-to-date on default rates on high-yield bonds. And a lot of that really is the energy sector, which really suffered.
[A lone oil derrick pumping under a grey sky]
And some of the retailers as well. We've seen some grocery stores and other retails shutting down in the second quarter.
[A shopper gathers fruits in a grocery store]
It's a lagging indicator as well. The bond market tends to get well ahead of these issues. They've already punished a lot of those sectors that will suffer and have suffered and will suffer further going forward. So we're not that worried about the default rate rising. We think it will rise further. We try to mitigate those risks by having an in-house credit analyst team that does bottom up analysis of companies to try and ensure we stay away from those companies that have trouble.
[The CIBC Asset Management Fixed Income office floor. Stock prices on a computer screen. An analyst looking at market information on an array of screens]
We minimize our exposure to individual companies. So in those portfolios, we tend to have less than 0.2% weight on our average high-yield company as exposure. So those companies, if any one of those companies has a lot of trouble, and the bonds get hurt really hard, the prices could go down 30%, 50%, 70%, it's not going to be anything that really hurts the entire portfolio because our exposures are so well managed.
[Soft music plays]
[Looming inflation?]
One thing we're really focusing on as well is what's going on with inflation. Now, we've heard inflation is coming back. I've been doing this 30 years and I've heard for 25 years of that, that inflation is coming back. It just doesn't seem to come back. But with the amount of money printing that's going on, all this quantitative easing and buying of bonds and other stimulus measures, there's a lot of liquidity sloshing around the system.
[Sheets of various international currencies being printed]
And you are running the risk that given the fact that transfer payments in the U.S. from the Federal Reserve, etc., they've replaced about 1.3 trillion of lost income with about 3.1 trillion of transfer payments - the paycheck protection program and other measures, so there is the potential that inflation could finally surface at some point. Perhaps not in the next year. We don't really see that as a risk. But two, three, four years down the line. You don't tend to be overly worried about inflation surfacing when you have a large output gap - the difference between actual growth and potential growth. And that gap has opened up quite large since the pandemic hit. That tells us inflation is not anything to worry about in the near-term over the next 12 months. But our eye is on that for indicators longer term and the longer term indicators we're looking at the present time aren't flashing any warning signs at the moment, but it's something really that bond investors will have to pay more attention to as we go through the next 12 month period.
[Soft music plays]
[The views expressed in this video are the personal views of Patrick O’Toole and should not be taken as the views of CIBC Asset Management Inc. This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change.
®The CIBC logo is a registered trademark of CIBC, used under license.
The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc.
Certain information that we have provided to you may constitute “forward-looking” statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or achievements to be materially different than the results, performance or achievements expressed or implied in the forward-looking statements.
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[CIBC logo]
COVID-19 Financial Relief Measures: Overview for Individuals
CIBC’s Jamie Golombek provides an overview of the top Federal Government relief takeaways.
Transcript: Individuals – Overview of COVID-19 Financial Relief Measures
[Onscreen Text: Jamie Golombek Managing Director, Tax and Estate Planning CIBC Financial Planning and advice]
[Soft music plays]
Jamie: As a result of COVID-19 pandemic, the government has introduced a number of measures to help individuals through this very difficult time. The biggest one is the Canada Emergency Response Benefit. That's the one everyone is talking about. That's that five hundred dollars a week that you might be entitled to, if you've lost your job because of COVID-19, or you are sick, or you have to stay home to take care of children. There's a number of other conditions that we discuss in our report.
[Onscreen Text: Personal tax measures: Canada’s COVID-19 response plan April 2, 2020 Jamie Golombek, Debbie Pearl-Weinberg & Tess Francis Tax and Estate Planning, CIBC Private Wealth Management On March 25, 2020, the Government of Canada passed legislation1 to put into place a variety of measures to help individual Canadians and businesses facing hardship as a result of the COVID-19 outbreak. Here’s a summary of the potential relief available to Canadians. Canada Emergency Response Benefit]
Jamie: That amount only applies if you've had employment or self-employment income, and you no longer have any income right now. Now, they may change the rules in terms of having a minimum amount of income, but this is the primary benefit. The way to apply for that is just go online to the CRA My Account site.
[Onscreen Text: canada.ca/my-cra-account]
Jamie: You register on My Account and you go in there and you certify that you meet the conditions. All the latest conditions will be online.
[Onscreen Text: My Account for Individuals
Continue to Sign-In Partner
CRA login CRA register]
Jamie: You certify if you meet that condition, and then you will get that payment starting the following week. It's $500 a week times four is $2,000 per-month. That goes for a number of months.
Jamie: The other programs may or may not apply depending on your personal situation. So, for example, we have a special GST/HST payment. There is a quarterly credit. If you're low- or middle-income family, they're going to increase that amount by about $400 for individuals and about $600 for couples. That starts in April. You don't have to do anything. If you're getting the GST/HST credit, you are going to get that additional amount.
Jamie: Similarly, if you've got children, you're getting the Canada Child Benefit, they've also increased the amount for May by $300 per child. Again, you don't have to do anything. You're automatically going to get that amount. Jamie: Finally, if you've got a RRIF, there's a minimum amount you must take out every year from the RRIF. That's based on the value on January 1st at the beginning of the year. In light of a dramatic drop in financial markets, the government has acknowledged that this could be a problem for many people that are forced to take money out of the RRIF if they don't actually need it. So, what the government has done for 2020 alone, is they're allowing any individual who wishes to take out 25% less than the normal required minimum amount from the RRIF.
[Onscreen Text: Lower RRIF minimum withdrawals for 2020: Canada's COVID-19 response plan
March 31, 2020 Jamie Golombek, Debbie Pearl-Weinberg & Tess Francis Tax and Estate Planning, CIBC Private Wealth Management On March 25, 2020, the government passed legislation that lowered the minimum amount that must be withdrawn from a Registered Retirement Income Fund (RRIF) in 2020 by 25%, “in recognition of volatile market conditions and their impact on many seniors’ retirement savings.” This is welcome relief for retirees who may have suffered a decline in the value of their RRIFs since January 1, 2020.
What's a RRIF?]
Jamie: This is all detailed, with some examples, in our report on the new RRIF minimums. This information is changing daily. So, we encourage you to visit our Web site, look at our reports for all the latest legislative changes as it relates to benefits for individuals as a result of COVID-19.
[Soft music plays]
[Onscreen Text: CIBC financial advisors provide general information on certain tax, investment and estate planning matters; they do not provide tax, accounting or legal advice. Please consult your personal tax advisor, accountant, licensed insurance professional and qualified legal advisor to obtain specialized advice tailored to your needs.
This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this document should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change. ®The CIBC logo is a registered trademark of Canadian Imperial Bank of Commerce (CIBC). The material and/or its contents may not be reproduced without the express written consent of CIBC.]
Equity investing: Lessons learned and current opportunities
Colum McKinley, CIO, Global Equities, CIBC Asset Management, discusses the importance of dividends, and why he sees current value in Canadian banks and REITs.
Equity Investing: Lessons Learned & Current Opportunities
[Soft music playing in background]
[Title reads: Equity Investing: Lessons Learned & Current Opportunities]
[Onscreen Text: April 9, 2020]
[Onscreen Text: Colum McKinley, CIO, Global Equities, CIBC Asset Management]
Global economies, financial markets, even our own daily lives are experiencing substantial disruption as a result of COVID-19. The world is coping with a significant and important issue. As long-term investors we want to obsessively worry about the risks in the near-term but remember the important lessons of financial history. And history has shown us over and over again that these periods of uncertainty, volatility, and angst ultimately, in the fullness of time, appear to be buying opportunities.
[A still image of people walking on a city street wearing masks, follow by a sign on a store door that reads ‘we are closed’, followed by an image of a US dollar bill with president wearing a mask, followed by a black and white image of depression-era people gathered together, followed by an image of a man standing in front of a wall-sized graphic showing changes in the stock market.]
I am very fond of Buffett’s old adage to “be greedy when others are fearful”. Fear remains very high today. We expect that in the coming months economic data and corporate operating results will deteriorate substantially. In meetings with business leaders they’re telling us that visibility in the near-term remains low. If we stopped there then this would be a bleak story but positives are happening in the background that should be providing investors hope for the longer-term. The battle against covid-19 continues to focus on flattening the curve, or slowing the growth of the number of new cases reported each day.
[A still image of a masked woman in a medical lab putting a liquid solution into a beaker, followed by an image of a mother and child, each wearing masks, and applying hand sanitizer, followed by an image of a man washing his hands.]
An important positive is the adoption of self-isolation or quarantine that is occurring around the world.
[A still image of a masked young woman staring out her window, followed by an image of a masked young child looking out his living room window, holding a sign that reads ‘#stayathome’.]
We have witnessed that strategy deliver results in other countries. Even now we are starting see progress in flattening the curve in many countries around the world.
[A still image of a hospital room, with a patient lying in a bed, being shown information to him on a tablet by his doctor.]
The great personal sacrifice we are all making is working. We continue to monitor this closely and we expect to eventually see a thawing of the restrictions and constraints on the broader economy. At the same time, central banks and governments have unleashed an unprecedent amount of stimulus into the economy.
[A still image of the Legislative Assembly of Ontario building, followed by an image of the Bank of London, followed by an image of the US Federal Reserve.]
In fact, they continue to demonstrate through their actions that they are prepared to do anything and everything needed to backstop the economy and provide liquidity into the financial system.
[A still image of a sign reading ‘Wall St.’, followed by a close-up image of Wilfrid Laurier’s face on a $5 bill.]
Once we get back to our normal lives, an incredible amount of pent up demand will exist. The stimulus and liquidity support will help the economy quickly regain its footing.
[A still image of a crowd at a concert, followed by an image of three men watching a soccer game at a sports bar, followed by an image of a happy group of people at a restaurant.]
In the midst of the crisis, investors are best to consider the old Gretzky advice of “skating to where the puck is going to be”. While calling a market at bottom is always difficult, we remain confident that looking out a year or two from now we’ll reflect back on today’s prices as a buying opportunity. And we want to ensure that we use this volatility and crisis to our advantage.
[Soft music playing in background]
[Title reads: Importance of dividends]
It’s in times like this that we are reminded of the importance of dividends to equity investors. Dividends are an incredibly significant source of return for equity investors. In the ten years ended December 31, 2019, the compound annual total return of the S&P/TSX Composite index was 6.9%. Approximately half of that total return was attributable to dividends. For equity investors, dividends represent the proverbial bird in hand. As markets have fallen, yields have increased. Many of the best companies in Canada today are providing yields in the high single digits. Buying today allows us to lock in these yields. This is very similar to the opportunity that existed in the global financial crisis. Banks have traditionally been a source of attractive dividends for Canadian investors. They have diversified businesses, they have strong management teams, and solid capital positions. They are expected to be a continued source of strong dividends for investors. In the near-term, bank earnings will be clearly challenged. Banks are a levered play on the economy. And as we witness the short-term deterioration of the economy, it’ll affect the profitability of these businesses. As a result, their dividend payout ratios will rise. Again, turning to history as a useful guide to today’s environment: since 1980, payout ratios rose above 100% only two times. The first was in 1987 when the big six reported negative earnings. And the second in 1992 when earnings declined by 60%. In both those periods the big six did not cut their dividends. In our analysis of the banks we have generated meaningfully stressed scenarios. We expect that the banks will be able to maintain their current dividends. And for investors that provides a stable and attractive dividend in a low bond yield environment. In addition, investors will benefit from the capital appreciation once markets and economies stabilize.
[Soft music playing in background]
[Title reads: Real Estate Investment Trust Units (REITs)]
Another source of attractive yield and an area of opportunity today is the REITs. Real Estate Investment Trusts own a variety of buildings and property, including apartments, offices, retail malls, and industrial units.
[A still image of a building under construction, followed by an image of a row of apartment buildings, followed by an image of a condo, followed by an image of an industrial shipping building.]
These are hard assets that are foundational to the economy.
[An image of a happy family sitting at their front porch.]
In addition, the cashflows are governed by contractual relationships in the form of leases.
[A still image of a close-up of a person putting their signature on a contract, followed by an image of a couple signing a lease.]
Over the last ten years to December 31, 2019, the S&P/TSX real estate sub-index has outperformed the composite, delivering a total return of 10.3%. Much like other parts of the market, these stocks have experienced substantial volatility recently.
[A graph shows the S&P/TSX Real Estate Sub-index on a monthly basis from 2010 until now. It shows a steady rise over that period, from 1500 points to 4000 points, until a recent, very sharp decline to 2000 points.]
This is creating opportunities. In today’s environment, REIT operating results will be affected. REITs are working with their tenants to provide relief in the short-term. Many are reducing or outright deferring rents for 2 – 3 months. As long-term investors, we look at these buildings that will provide monthly cash flow for 50, 60 years or more. 50 years is 600 monthly payments. While reducing or foregoing 2 or 3 months in the near-term will effect their short-term results it doesn’t meaningfully have changed the long-term value of these buildings. Yet recently REIT valuations have declined meaningfully, with many down in excess of 40% from their highs. In today’s environment they’re providing dividend yields in the high single digits, and very very attractive valuations for solid businesses.
[Soft music playing in background]
[Title reads: Attractive valuations]
Our portfolios are made up of high quality, blue chip businesses. Today, we are seeing the opportunity to add to these businesses at very attractive valuations. Our continued work and recent conversations have left us with higher conviction of the ability of these companies to navigate and survive this uncertainty. We know from past experience we will at some point look back at the current world as a buying opportunity. We continue to be ever vigilant about managing risks while ensuring that we don’t waste this crisis and the opportunity that it is presenting.
[Soft music playing in background]
[Disclaimer: The views expressed in this video are the personal views of Colum McKinley and should not be taken as the views of CIBC Asset Management Inc. This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this video should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change.
®The CIBC logo is a registered trademark of CIBC, used under license.
The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc.
Certain information that we have provided to you may constitute “forward-looking” statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or achievements to be materially different than the results, performance or achievements expressed or implied in the forward-looking statements.]
COVID-19 Impact: A medical view
Michal Marszal, Senior Global Healthcare Equity Analyst, CIBC Asset Management, uses his background as a Doctor of Medicine to review the range of potential outcomes and likely progress on a cure.
HOW COVID-19 PANDEMIC COULD EVOLVE: A MEDICAL TAKE
Just to begin, I think it will be useful for the audience to understand some basic facts as it relates to SARS-CoV-2 causing a disease called COVID-19. This virus belongs to a family of coronaviruses and just like all human relevant coronaviruses, it causes of upper respiratory tract infection, which can be just similar to a common cold or some more severe cases can cause severe case of pneumonia.
This specific virus has been fairly well characterised. It's genetically quite similar to the virus that also belong to the family of coronaviruses that cause SARS. We understand the mode of transmission quite well, which was through droplet transmission. It can spread from person to person when one individual coughs and droplets are being transmitted from the airways of one person to another. In this specific case, we do have a relatively good understanding of the actual rate of transmission, which ranges between 2 and 3. In other words, one individual, generally speaking, without any restrictions, will be in in the broader population infecting approximately 2 to 3 other individuals, causing a relatively logarithmic increase in the number of cases. The actual fatality rate, which is, of course, gravest of consequences of contracting this infection, is significantly lower than SARS. However, probably higher than the regular annual flu. And it is currently estimated at approximately 2%, but with the adjustments for the actual number of cases that are asymptomatic or mildly symptomatic is probably well under 1%.
We currently are seeing global pandemic, meaning that the vast majority of countries in the world have been affected by the virus. The number of cases are now exceeding 350,000 were over 15,000 people die of this specific condition. It's important to put these numbers in a specific context. These are reported numbers. The actual numbers out there have to be adjusted for various factors: like time to actual diagnostic testing, the number of cases that are not presenting, and you know, the annual flu, where different government agencies will adjust the reported numbers to have a better sense of the actual percentage of the population that's being affected. And, therefore, these numbers sometimes have will have to be magnified by a factor of approximately five to 10.
There have been a number of predictions published in the early stages of this outbreak, stating that up to 70% of populations in affected countries could eventually be infected over the course of mostly this year. These predictions are probably painting a relatively unrealistic scenario, given two major developments: one of which, is the broad-based quarantine measures that have been deployed in a majority of the countries affected; And number two is currently wide availability of testing.
In most of the Asian countries the spread of the virus has been slowed down quite dramatically. There are some concerns of the so-called second wave potentially coming back as it’s being recycled from the west back into Asia. But we don't yet have any evidence for that. So, that's a significant development that is material for how we're thinking of the evolution of this virus in the West, where we're either at early stages or have not yet seen a significant inflection in the number of new infections. And that is the fact that for the original epicenters of the coronavirus outbreak, we've seen quite a successful implementation of the quarantine measures and control of the virus that would currently indicate peak numbers in a single digit percentage range in the worst-case scenario, excluding, again, the second wave.
So, to put this in a context, I would say that over the next few weeks we will probably have a better sense of the evolution of new cases in both the United States and major European countries. I think that the number of new cases will give us a very good indication of the progression of the so-called curve of infections, including the peak, and the total number of infected patients. That curve will be evolving over a period of several months. By the fall, given the range of scenarios, we will most likely be done with the vast majority of newly infected cases. Again, assuming that there will be no second wave, the virus and the pandemic will be coming to an end.
The key question really is what the shape of the curve looks like. And I think that most authorities right now would agree that with the implemented policies in place, we will be looking at numbers in totality of the patient population that is infected in the United States and most of European countries, that is going to be substantially lower than 50% in the most dire-case scenario. Some of the most realistic estimates will be placing this type of an epidemic in a range of a relatively severe flu season, where typically up to 15 or 20 percent of the population is infected with the virus. And with the measures in place, the optimistic scenarios are placing those numbers substantially lower.
The key point here, is that the currently estimated numbers of people being infected in the West, as well as in Asia, are probably higher or what we would consider to be in the range of realistic scenarios. Beyond just a natural evolution of the infection, in light of these developments and policy measures, I think it's also worth talking about a number of different developments on the pharma front, mostly related to novel therapeutics that may be getting into the clinic quite shortly, or vaccines. And what this really means for the treatment of, of affected patients or more importantly, from our perspective on the actual evolution of the disease.
So, I would say that the vaccine development, maybe starting from the end, is something that will take quite a long time, and it's unlikely to be really materially relevant for the current pandemic. Most of these vaccines will be available at the earliest next year. By then or we are projecting that the pandemic--without subsequent waves of infections for which we don't have any evidence right now--are going to be mostly prophylaxis that is highly hypothetical.
In the area of therapeutics, we have so far had mostly a number of misses, despite some excitement with several unique agents that are in development for COVID-19. There has been a study of a repurposed formulation of two drugs being used for the treatment of HIV. Those studies have so far been negative. In late stage clinical trials, we’re mostly looking at two specific agents. One is an old anti-malarial drug called chloroquine or hydroxychloroquine, which is a related molecule which has some anecdotal evidence of activity, mostly in China. I would say that a high degree of skepticism has to be applied as to whether this specific drug is going to be effective. We are seeing some pent-up demand in the United States, both with negative data potentially coming out of randomised trials, the utilisation of this product would very quickly diminish.
The second agent that it is worth mentioning is called the Remdesivir, which has been developed by Gilead Sciences, and it's currently in Phase 3 clinical trials testing. The data on whether the drug is efficacious or will be coming out very shortly in the month of April 2020.
This product is somewhat more promising them chloroquine because of its relatively early efficacy against the specific strain of coronavirus as studied in animal models. However, the chances of success in actual real-life clinical trials are in the range of 50% or slightly higher.
An interesting development is the use of human derived plasma from patients that are recovered from the disease. That can be used very quickly and effectively in the most severe of the cases. And potentially, some of these products will be rolling out over the next few weeks to months. Additional clinical development is mostly targeting the actual clinical management of the complications of the virus and therefore will unlikely have any impact on the actual evolution of the disease, and the spread and clinical resolution from that perspective.
Hopefully, that covers the very high-level of both the epidemiology of the virus, and some of the developments that are happening right now in the biopharmaceutical industry and within government agencies, that potentially would be addressing the current pandemic on a global basis.
[Onscreen Text: The views expressed in this video are the personal views Michal Marszal and should not be taken as the views of CIBC Asset Management Inc. This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. All opinions and estimates expressed in this document are as of the date of publication unless otherwise indicated, and are subject to change.
®The CIBC logo is a registered trademark of the Canadian Imperial Bank of Commerce (CIBC), used under license. The material and/or its contents may not be reproduced without the express written consent of CIBC Asset Management Inc.
Certain information that we have provided to you may constitute “forward-looking” statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or achievements to be materially different than the results, performance or achievements expressed or implied in the forward-looking statements.]