Vaccine breakthrough at last?
It seems that the US election result would be the big news this week, but the report that the Pfizer vaccine has a 90% efficacy rate has stolen the show.
There are a few qualifications of course. Does it work as well on the elderly? How long does the protection last? But the figure of 90% is far higher than even the vaccine optimists expected.
It also raises hopes that other vaccines will have similar success. The Pfizer vaccine needs to be stored at -70 degrees centigrade and require two shots. Meanwhile, the Johnson & Johnson vaccine needs just one dose, while the Oxford vaccine can be stored in a fridge. There is a real possibility that several vaccines will prove effective.
So where do we go from here?
One of the key features of the messenger RNA vaccines is that they can be mass produced very quickly – far faster than the conventional vaccines, which work by weakening the actual virus. They have to be cultured and that takes time. There will be hundreds of millions of doses of the Pfizer vaccine available by next spring.
It now seems highly likely that medical science has found a way to beat the virus and that the world can begin to get back to normal.
What should investors do?
First, the risk-on rally has, in our opinion, further to run. Second, it will be a case of the laggards overtaking the leaders. Value should outperform growth. Yes, banks will do well, but we think there is still enormous upside in the travel and leisure sector. Even after today’s bounce, they are still trading well below pre-Covid levels.
As for bonds, it’s true they’ve been hurt as yields rise. Yes, curves may steepened further, but central banks will be in no hurry to raise interest rates.
This year has been a horrible one for so many people. Excess deaths have been huge across the globe, businesses have been damaged and lives put on hold. But the solution that we and the world have been waiting for has finally arrived.