Responsible Investment

ESG Viewpoint – COVID-19 and the pharmaceutical industry

How is the pharmaceutical industry responding to COVID-19?
September 2020

Over the weekend, China saw a small outbreak of new cases in Beijing, and Germany has had small clusters of cases, but it is the US that is far more worrying.


Some states, such as Arizona, Texas, and North and South Carolina may all have to go back into lockdown. These states abandoned face masks and social distancing while cases were still rising, partly on state government advice, and also have less testing, little or no track and trace, and have more inequality and weaker healthcare systems – both key factors in the virus spread.


Politics impacting virus measures

he virus is a political issue in the US to a greater degree than in most other countries, which doesn’t help to contain the virus, and, with elections looming, the impact is becoming noticeable. The betting markets previously had the outcome of the presidential election as a coin toss. A Biden victory is now put at 62%, a 10 percentage point rally since late last month. The chances of the Democrats regaining control of the Senate have increased too, now at 58%, having languished in the low 30s earlier this year. That’s important because it would give the Democrats a clean sweep of President, Senate and House, they seem certain to retain control of the House. This would leave them better able to pursue their policy agenda. Their agenda could include controls on prescription drugs, and measures to restrict Google and Facebook, possibly forcing them to split up their companies – bad for markets. But it would also mean that the much vaunted infrastructure programme could finally see the light of day. And that would be a huge benefit to many domestically-focused US companies.


The UK to be worst affected

Meanwhile back in the UK, it now seems that the downward trend in new cases has been greater than previously realised. Good news on the virus then, but what about the economy?

The OECD forecasts that the UK will have the worst recession across all developed economies, and this week sees more key economic data in the UK, following last week’s dramatic fall in GDP. It should be no surprise that GDP fell so far given that so much of the economy was closed by order of the government. We are likely to see dreadful news on unemployment even though the Treasury is paying a vast number of people on furlough. But retail sales figures for May could show a bit of a bounce and with more shops opening this week, June’s figures look set to rise further. The May public sector borrowing figures will be the real shocker – set to be well over £50 billion and possibly closer to £100 billion. Numbers for a single month that would once have been a crisis for a whole year. But, and this is important, bond yields in the UK remain very low. As they do in the rest of the world, which is also on a borrowing binge. 


Now could be a buying opportunity, but you’ll need to hold your nerve

So, financial markets have been hit by the second waves everywhere from China to the US.  But they had arguably run up too far on optimism that the recovery from global recession would be swift. The setback that I’d been looking for two weeks ago, hit last week, but the longer-term outlook remains positive.  I do think we’ll be back to pre-virus levels of economic activity and profits by the end of 2021. Investors that are heavily underweight risk may see now as an opportunity to move gradually back in. But be warned: you’ll hear forecasts of a double-dip bear market so hold your nerve.

Steven Bell

Managing Director, Portfolio Manager & Chief Economist, Multi Asset Solutions


Risk Disclaimer

The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

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