29.05.2020
Global equity markets were buoyed this week by the news of positive results from clinical trials of a vaccine developed in partnership by US pharmaceutical company Pfizer and German biotechnology business BioNTech. The vaccine was found to have a 90% efficacy rate amongst the 43,538 trial participants with no serious safety concerns and Pfizer has said that it can produce 50 million doses globally by the end of this year, and up to 1.3 billion in 2021. Given that this is a two-dose vaccine, that is enough to vaccinate approximately 650 million people.
The news was hailed by Pfizer CEO Albert Bourla as a great day for both science and humanity. On the scientific front, the speed with which the vaccine has been developed and the use of mRNA technology in the vaccine’s development are both remarkable. Where conventional vaccines trigger an immune response by administering an inactive virus into the body, the mRNA method sees lipid nanoparticles injected into the body which instruct the recipients cells to produce proteins that create immunity. This method is considered safer than alternative technologies.
From a human perspective, the results raise the prospect of a return to normality, or at least a new, post-Covid normal. Challenges remain, and some questions are unanswered, such as how long immunity lasts, how effective the vaccine is specifically for those that are most vulnerable, and whether enough people are prepared to take it in order to reach herd immunity. However, if we assume that these are not insurmountable issues then periods of lockdown and strict restrictions on movement could soon be a thing of the past.
Equity markets responded with an extremely strong rally on Monday following the announcement of the results. The strongest performance came from those sectors that been hardest hit by the impact of the restrictions put in place to tackle the coronavirus’ spread, including energy, retail, airlines, and hotels. Some stocks that have benefited from the stay-at-home trade, such as video conferencing platform Zoom, failed to participate in the rally and experienced weakness on the day.
We have been asked by clients this week if the news of the vaccine has changed our investment views, or our recommendations on how portfolios are positioned. Our answer, in short, is that it has not. We remain firm proponents of diversification within one’s portfolio and avoid making calls on short-term events which can be notoriously hard to predict. Furthermore, while the short-term outlook has improved for some of the companies that rallied the hardest on Monday, such as department stores for example, longer-term they continue to face significant structural challenges in our opinion.
Our focus is therefore on continuing to find high-quality companies, with structural growth drivers and competitive moats, that are reinvesting at attractive rates of return to support long-term sustainable growth. Such companies, with few exceptions, have fared relatively well during this most challenging of years, and, going forward, we expect them to continue to do so.
If you would like to discuss anything raised in this article in more detail, please don’t hesitate to get in touch.
This note has been produced by Killik & Co on the basis of publicly available information, and all sources are believed to be reliable, but we have not independently verified such information and we do not give any warranty as to its accuracy. Some of the stocks mentioned in this note are covered by Killik & Co’s Equity Research team and others are not. The mentioning of the stocks does not represent a recommendation to buy or sell any securities, and the note is intended as a marketing communication rather than research. This note does not purport to be a complete description of the securities, markets or developments referred to in the material. All expressions of opinion are subject to change without notice. Nothing in this note should be construed as investment advice or as comment on the suitability of any investment or investment service. Prospective investors should take advice from a professional adviser before making any investment decisions. There are risks with almost every investment that you may not get back the original capital invested. The value of your investments may fall as well as rise and the past performance of investments is not a guide to future performance.
