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The markets are still all about Covid-19

The death statistics and the number of people with Covid-19 are not that reliable. Some countries have tested a lot more people than others to find the virus.

Charles Stanley

in Features Fiduciary news


When we look back at what we were all talking about in January this year it is like revisiting a lost world. Market worries then were about world growth failing to accelerate to above 3% for the year. Maybe the central banks and governments would not reflate enough. Maybe the US/China disputes would escalate, doing some modest further damage to world trade. Then the virus arrived in the west from China. Most commentators agree that the pandemic changed most things, and came to dominate the news agenda. Today, as we learn to live with the virus, it is still the most important issue that underlies economies and equities.

People want to know if there will be a second serious wave of the virus, with more lockdowns and major interruptions to economic life. They ask if there can be a vaccine by the year-end which will be rolled out sufficiently to allow more normal social and economic conduct. They ask about the varied pace and impact of the virus country by country. It is time for an update as background to our investment stance.

The news media produce a list of shame, the countries with the highest death rates from Covid-19. They list the USA, Brazil and Mexico as the three countries that have sadly experienced the most deaths ascribed to the virus. It suits the narrative of some who think Presidents Trump and Bolsonaro were too cavalier in their approach to lockdowns and the advice of the World Health Organisation as they fought to keep more of their economies open for business. It is a misleading list, as it takes no account of the relative population size of each country. A more meaningful report would take deaths per million people as a relative measure. This produces a very different picture. Belgium has always been the worst performer by a substantial margin on this basis, followed by Peru and Spain. These countries followed global advice.

The death statistics and the numbers of people with Covid-19 are not that reliable. Some countries have tested a lot more people than others to find the virus. You would expect all things being equal the more testing you do the more Covid-19 you will identify, allowing more death certificates to cite it.

UK tests most

Of the larger countries, the UK has tested most at 277,774 tests per million people, followed by the USA at 204,000. At the other end of the scale, Mexico with just 9,731 tests per million and India with 19,431 may be missing people who have died of various infirmities who also had Covid-19. Elsewhere, these would have been recorded as a virus death. The judgement of what to put on the death certificate is also a matter of variation between countries. Some think an elderly person with diabetes, or dementia or a weak heart dies of that morbidity, whilst others ascribe the death to the virus when it was at best a contributory cause if there was any sign or symptom of it.

When it comes to numbers of cases of the disease Chile amongst the larger countries tops the list in numbers per million, followed by the USA and Peru. Again, levels of testing and energy put into reporting will have some impact on these numbers. Worldwide the stated death toll is now 750,000 out of 21 million total recorded cases of the disease, giving a death rate of under 4%, with under 0.3% of the world population infected so far. All this implies under-recording of the incidence of the disease, given the way many people have a very mild version of it.

Predicting the future of the virus is not easy. Some fear the move into winter in the populous large cities of the northern hemisphere later this year could see a widespread pick up in Covid-19. There is also likely to be difficulty in distinguishing colds, flu and other lung and throat infections from Covid-19. The world relies on individuals deciding whether to get tested and whether their illness warrants isolation and sick leave. Some think the medical profession has got better at understanding the disease and will be able to offer better treatments and lower the death rate in any second wave. Some are optimistic that one or more of the vaccines being placed on fast track for clinical trials will pass and be offered to billions of people to create resilience against further virus attacks.

Positive developments

There has been some good news in medical responses to the virus. Antiviral drugs like Remdesivir have been found to combat it in some patients, especially when taken early in the development of the disease. Steroids are found to have beneficial impacts on patients whose immune systems overreact to the virus and dislocate the normal functioning of organs in the body through a cytokine storm. Some serious versions of the disease impair the lungs through blood clots, so the patient can respond to anti-clotting and blood-thinning drugs. Some also think vitamins can play a role in warding off the virus. Cutting the death rate is important, and helping prevent is also encouraging. People need good medical advice on which drugs may work for them now based on a wider range of understanding and experience.

The World Health Organisation lists five western vaccines proceeding with Stage 3 clinical trials. The Oxford/Astra one for example is currently conducting trials on adults in Brazil, and the Moderna/Niaid one is undergoing US Phase 3 clinical trials. There are also Chinese ones at advanced stages, and Russia claims to have a working vaccine, but it has not produced any clinical trial data to get it registered at the WHO. The European Medicines Agency refers to 33 potential vaccines it knows about but expresses the view that it will take at least one year to get approvals and availability for a vaccine.

The best investment conclusion we can come to is there will be a very marked reluctance by the governments of most advanced nations to undertake a further national comprehensive lockdown. The policy currently concentrates on test and trace. The theory is to isolate all who have the virus or who have recently been in contact with those who have the disease, and to offer special protection to those most vulnerable to the virus owing to other medical conditions. This will leave most people most of the time sufficiently free to go to work and to revive parts of the economies damaged by lockdown. Our base case assumes no general lockdown in the major economies, some continued local lockdowns and some social distancing restrictions. Things would turn out better than the base case should a vaccine be approved and be taken up by enough people worldwide to allow complete relaxation of controls. Downside occurs if we are wrong and the virus intensifies its attacks forcing major economies to return to widespread lockdowns. Next week we will look at what present levels of social distancing and local lockdowns in advanced countries mean for economies and markets.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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