A COVID-19 vaccine breakthrough

Personal Investments

17 November 2020

We look at the next steps for both vaccine watchers and stock markets.

A Monday morning in November isn’t usually the most exciting time for most of us. But that all changed when American drugs giant, *Pfizer, and Germany’s *BioNTech announced they had trialled a vaccine that was 90% effective in reducing coronavirus symptoms.

That announcement preceded a statement from another US drug company, *Moderna, claiming that its effectiveness in reducing symptoms was almost 95%. While Pfizer hopes to start immunisation by the end of the year, subject to emergency approval, Moderna’s vaccine is unlikely to be available until spring 2021.

How have stock markets reacted?

Global stock markets have rocketed on the news. Those companies that had been, and continue to be badly affected by the lockdowns, such as airlines, cruise liners and leisure stocks powered ahead. By contrast, the prices of ‘stay-at-home’ stocks, such as technology and parcel delivery stocks fell. We believe this is an understandable reaction, although longer-term themes between stock market winners and losers could reassert themselves once the initial euphoria dies down.

The UK’s *AstraZeneca and University of Oxford partnership

In terms of returning to some sort of normality, this is undoubtedly the news that we’ve been waiting for. In the UK, we are currently awaiting the news of vaccine trials. Even though the technology used is different from that of Pfizer, we believe the main advantage of the Oxford vaccine is that it only requires refrigeration at +2°C to +8°C. This contrasts with the very cold temperatures needed for the Pfizer venture which bring about their own logistical challenges.

Not out of the woods yet

But while we saw initial investor enthusiasm on the vaccine announcement, we believe this should be tempered slightly. The news contrasts with the grim hospitalisation and death numbers from both Europe and the US. While a vaccine should accelerate growth next year in both continents, the current second wave is likely to impact heavily both economies, in our view.

We believe this will lead to a clear economic slowdown in the coming weeks, while we worry that the response from governments worldwide to inject more cash into global economies may well be less forthcoming than the first wave. For example, the (likely) divided government as a result of the US election result makes it difficult for US politicians to agree a large monetary package, while Europe appears to be relying on the introduction of further support measures.

What does this mean for stock markets?

Overall, we believe the promise of a near-term vaccine will encourage investors to keep on buying shares on days of market weakness. Later in 2021 it may well be that, as the long-term implications of shutting down large parts of the economy become apparent, investors pause for thought.

Unemployment levels, globally, are on the rise, while governments have taken on vast debts to pay for this pandemic. We won’t know until much later into 2021 just how much negative impact there has been, and what will be the exact impact on individuals and businesses after such a life-altering year. But whatever the answers to these longer-term questions, we don’t think stock markets will be seriously impacted in the coming weeks.

 

Remember, the value of any investment is not guaranteed. The value of investments and any income received from can go down as well as up and you may not get back as much as you had originally invested. * For illustrative purposes only. The above information does not constitute a recommendation to buy or sell any security.

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