Simon Lloyd – Chief Investment Officer
At present UK investors are focussing on the outcome of the UK/EU negotiations but globally the success, or otherwise, of the Covid vaccines is likely to determine the future direction of equity markets.
The Covid vaccine landscape consists of six main candidates spread across three vaccine technologies. The two front runners are MRNA vaccines developed by Pfizer and Moderna where trials have shown high efficacy rates around 94-95% and, crucially, high effectiveness in over 65s and across ethnic backgrounds. The primary issue with the MRNA vaccines is the very low storage temperatures (Pfizer at -70OC and Moderna at -20OC) which makes distribution difficult, especially in less developed economies. The Pfizer vaccine has been approved in the UK and mass vaccinations have now started.
AstraZeneca and Johnson & Johnson are both developing Viral Vector Vaccines. AstraZeneca has published interim results with Johnson & Johnson expected to release their results early in 2021. The true efficacy rate of AstraZeneca’s double full dose vaccine trial sits at 62% and the accidental half dose trial has an efficacy rate of 90%. AstraZeneca has added a new arm to its US trials to further explore the half dose method. However, efficacy rates will likely come down from 90% as the people in the half dose group were, on average, younger than other manufacturers’ trials. Although it has a lower efficacy rate of 62%, this vaccine has the advantage that it can be stored for 6 months at 2-8O’C along with the ability to be manufactured in larger quantities compared to competition. Therefore, the AstraZeneca vaccine looks particularly promising for use in emerging and less developed markets, and because of this it remains a key contender in the vaccine race despite the lower efficacy rate.
The remaining two vaccines use an immune boosting compound called an Adjuvant to assist the body in producing neutralising antibodies. These are being developed by Novavax and the Sanofi and GSK partnership and are using already proven technologies. Both of these trials are further behind the other companies and results are likely to be released in the first quarter of 2021.
With the two Pfizer and Moderna vaccines showing no serious side effects (body aches and fatigue being the most common issues), US and EU regulators should soon follow the UK with approval for emergency use of these vaccines. This is the start of a programme of vaccination that should spread across the globe in the first six months of the coming year.
So, what does this mean for global stock markets? Despite recent lockdowns in the US and Europe over the last month markets have remained resilient overall, primarily based on optimism that widespread vaccinations will happen across the world throughout 2021. So far vaccine news has resulted in a significant bounce back from ‘value’ stocks and a slowdown in ‘growth’ stocks however, ‘growth’ remains the clear winner of the year and ‘value’ stocks are still below pre-Covid levels across most sectors. It is likely that continued positive news regarding regulatory approval and the distribution of vaccines across the world, coupled with new results from other Phase 3 trials will support markets going forward. In contrast to this optimism, the Chancellor of the Exchequer’s recent statement that the UK will not return to pre-Covid levels of activity until the end of 2022 provides a stark reminder that there are still many headwinds for global economies to navigate.