Nov 16 2020

The week began with news that the Pfizer-BioNTech vaccine was 90% effective, that mass production had been launched and emergency regulatory approval for rapid use from the end of November was being sought.

This news is the biggest step so far towards a substantive return to normality for the global economy, though of course this transition will be long and pockmarked with obstacles to be overcome.

While the vaccine – known as BNT162b2 – seems to have achieved a much higher efficacy level than expected by epidemiologists, and has been developed much faster than hoped, the trial is not yet complete, and it is possible that safety concerns will still come to light. The high efficacy rate could still change, and we don’t yet know how successful it will prove to be in old and vulnerable people. Also, the vaccine needs to be stored at extremely cold temperatures which will raise the cost of use and impede distribution.  It is also unclear how quickly it can be produced.

Pfizer has estimated that it can produce c. 50 million doses by year-end, and a further 1.3 billion doses by the end of next year. Each person needs two doses meaning around 675 million people could be vaccinated by the end of 2021, but several factors could yet see this timeline accelerated should governments find ways to increase production or focus inoculation efforts on those most at risk as their benchmarks.

There are various other vaccine candidates in stage 3 trials reportedly hoping to release data soon, including perhaps most prominently those from US biotechnology company Moderna and AstraZeneca/University of Oxford. The Health Secretary has indicated that the NHS will be ready from 1st December to roll out a vaccination programme should one be approved; the UK has ordered 40 million doses of the Pfizer vaccine, with 10 million doses expected to be immediately available this year – enough to vaccinate 5 million people.

Economic forecasts look substantially improved with the impact of a vaccine, with Capital Economics estimating that it may allow GDP to rise to its pre-virus level a year earlier than otherwise per the chart below, and means that unemployment would peak at 7% rather than 9%:



However, they and others are quick to point out the scale of the economic damage that still remains and warn against underestimating its impact even in light of this new positivity. As we have pointed to over the past few weeks, economic activity is again rolling over with the imposition of new lockdowns, with the chart below from Bloomberg plotting alternative, high frequency data that show concerted slowdowns, particularly across Europe and the UK:


We expect monetary and fiscal policy to remain extremely loose for the foreseeable future and to remain integral to our transition back to normality.

The markets’ reaction to the vaccine news was extraordinary; within 30 minutes of the announcement, various equity indices had moved more than 5% higher and government bond yields had spiked upwards, leading to losses in those areas.

Beneath the surface index level, enormous moves took place between optically cheaper ‘value’ equities and more expensive ‘growth’ equities as investors were forced to quickly recalibrate views on and estimates of future growth. Stocks in affected sectors such as airlines, cruise ships, cinemas and banking saw large price gains, whereas those previously top performing companies particularly in the tech and related sectors fell.

The chart below shows the daily percentage point differential between the MSCI World Value index and the MSCI World Growth index going back to 1998 – Monday 9th November was the largest differential ever recorded between the two indices at nearly 4.5%. While much uncertainty remains, we believe these price movements signal the potentially explosive moves that we could see in parts of the market that are fundamentally mispriced for a normalised environment:


At the index level, the UK was the standout performer, with the FTSE 100 and 250 indices rising above all others in Pound terms by 7.0% and 7.6% respectively. Europe also rose strongly with a 4.8% gain, with the gains seen here and in the UK representative of their higher correlation to improved virus sentiment.

Elsewhere, higher risk areas of emerging market equities also performed strongly, namely Latin America and Eastern Europe, while other regions still saw gains but on a lesser scale. US equities rose by 2.1%, driven by the banking and energy sectors, with Japan (1.6%) and Asia (0.7%) still further back. As these latter two regions have performed strongly in relative terms to date given their better handling of the virus, they have less to gain from the vaccine announcement.

Government bonds sold off heavily, as did precious metals before staging a recovery into the  weekend. UK Gilts fell by 1.5% and inflation-linked Gilts by 3.7%, driven lower by the positive news, with gold and silver lower by 3.5% and 3.6% respectively, though rallying off significantly lower lows.

While it is important not to get carried away with last week’s events they are certainly cause for optimism; hopefully to be boosted further in the coming weeks. We shall be watching closely for any new information on this and other vaccine candidates and what their impact may be on asset prices.

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The value of investments may fluctuate in price or value and you may get back less than the amount originally invested. Past performance is not a guide to the future. The views expressed in this publication represent those of the author and do not constitute financial advice.

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For further information, please contact:
Andrea Barker
/ Tel. +44 (0) 191 519 6243