Just the injection the markets needed
Equities and other risk markets are moving very sharply today as a result of the announcement by Pfizer Inc. and Bio NTech SE that their COVID-19 vaccine trials have been extremely successful, with over 90% of test patients not being infected by the virus. This spectacularly high infection prevention rate has boosted investor sentiment, after the US election outcome which was also favourably received.
This pandemic has been dealt with through a series of instruments, which are progressively becoming less blunt and more focused:
- First came the lockdowns
- Simultaneously all the developed country central banks, led by the US Federal Reserve (Fed), opened all the monetary policy taps and provided more money to the economy than had literally ever been seen
- Later, governments started spending to support the economy, companies and employees, with furlough schemes, payroll protection and even direct payments to households; the fiscal spending reached unprecedented proportions in some European countries and was also very large in the US
- The latest development is probably the most crucial: all of the above are designed to mitigate the effects of the pandemic, but until the virus is under control, the economy cannot go back to normal; healthcare solutions are needed and the latest news shows that we are moving into the final act of this virus - once we start preventing and curing the infection, we are within sight of the end of the problem.
Could this be a false dawn? Of course. The logistical prowess of manufacturing billions of vaccine doses and distributing them to all cannot be underestimated and we also cannot forget the large numbers who may not want to take the vaccine. The virus will still be with us for a long time, but its impact on economic activity could be seriously dampened, which is why markets are soaring.
How will the vaccine impact discretionary client portfolios?
We have been recommending being constructive on equities and risk for a few months, seeking ideas to navigate the uncertainty and implementing them into our client portfolios. Our technology and healthcare themes have proved resilient to the pandemic. Our ESG theme (environmental, social and governance) has harnessed the power of clean energy and cyber security – and the environmental message provided by US President-Elect Biden should be reflected in climate change investments.
The latest vaccine news supports our addition to European equities and early indications are it will positively impact cyclical stocks, such as industrials and the travel sector, who should benefit disproportionally from the vaccine. The combination of the US election result and the healthcare advances may provide additional opportunities. We will report back to you but the message is clear: we are now seeing the light at the end of the virus tunnel and this should be positive for investors.
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Investment involves risk and you may not get back what you invest. It’s not suitable for everyone.
Investment involves risk and is not suitable for everyone.