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Racing for a vaccine to unlock the impasse

World leaders wish to stop the debilitating cycle of the Covid-19 infection. Vaccines will allow a resumption of growth in 2021, but there is still likely to be economic damage ahead.

World leaders wish to stop the debilitating cycle of the Covid-19 infection. Vaccines will allow a resumption of growth in 2021, but there is still likely to be economic damage ahead.

by
Charles Stanley

in Features

25.11.2020

As expected, the G20 summit passed with little media interest in its conclusions. It is still working away at digital tax – and the Group of Twenty expressed its concerns about any rush to a “so-called global stablecoins” without proper discussion of the regulatory and legal ramifications.

It issued a text, which made much of the need to orchestrate a recovery from the damage of Covid-19. What it offered in length, it lacked in precision. Sustainability, equality and a focus on the most vulnerable punctuated the document. It expressed the hope that better medicines and vaccines will allow a resumption of growth in 2021.

The autumn pandemic – or the second wave of the virus in the Northern hemisphere – has done considerable damage. The world has now suffered 1.4 million deaths from 59.6m reported cases, a death rate of 2.3%. There have doubtless been many more cases than the official reports confirm, given the absence of testing in the early months everywhere and the selective testing still in many countries. The true death rate is therefore likely to be considerably lower.

Belgium is still the unfortunate country with the highest death rate per million people, at 1,357. It is followed by Peru at 1,075 and Spain at 922. The US has reported the most cases overall, with India second, Brazil third and France fourth.

No obvious correlation

Most countries have followed the same advice, locking down their economies to arrest the spread, asking people to work from home where possible and enforcing various rules on social distancing. There is no obvious correlation between success rates in controlling the virus with the stringency of measures adopted, though it is widely assumed that lockdowns do bring infection rates down and are necessary where the infection is rising rapidly. Brazil and the US, for example, do not have worse death rates than the main European countries excluding Germany, though they did not follow such strict nationwide controls. Within Europe Belgium, took tougher action than Sweden – yet has suffered a death rate twice as high.

There is a wish to stop the debilitating cycle of the virus. A lockdown being imposed, the virus subsiding, followed by a relaxation and the infection rate increasing again. The world health establishment has long argued that it will take a vaccine – or three – to end this cycle.

Today, we are well into the race for the vaccine, with three products now performing well in Stage 3 Clinical trials, preparatory to being granted regulatory approval. It is likely all three will be granted approval quickly, as there is a huge pressure on the regulatory authorities to allow the rollout to see if this will indeed get us out of the misery of current policy.

There are some issues with early approvals. Because the companies have not been able to test the effects of the vaccines over any decent length of time, they cannot know how long the protection they offer might last. The AstraZeneca/Oxford University product has shown in trials that, where less than 3,000 people were only given a half dose for the first of the two injections, they got better results than with the main trial cases on full dose.

This implies the need for further testing with different doses to optimise the effectiveness of the injection. In each case, there are uncertainties about whether the vaccines prevent passing on the infection. The Oxford/Astra product has advantages over the other two in not needing storage at ultra-low temperatures – and in being relatively cheap and easy to produce in large quantities.

No track record

The main issue the Regulators have to check for all three vaccines is that any side-effects are acceptable and there is no unreasonable health risk from having an injection. They will not have long-term data, so will have to assume any adverse effects show themselves soon after vaccination.

It does look as if we have a difficult northern winter – to be followed by a much better outlook from spring onwards next year. This winter, governments and health authorities will still want to err on the side of caution and keep rules of social distancing in place.

There is going to be more damage to all those sectors and companies that depend on social contacts. The more months that pass with little or no revenue for bars, cafes, airlines, hotels, entertainment companies and events operators, the more need there will be for capital reconstructions, refinancings and closures in these areas.

The more people get used to working from home and enjoying the absence of the early morning commute and the season ticket bill, the more there will be demands to change the office routines and reduce the amount of office space the company needs. The longer people get used to the instant gratification of buying online with next day delivery, the more high streets will have to shrink and shop chains slim down their physical presence.

The pace of relaxation of controls will be guided mainly by the trends in the disease itself, which may well subside as warmer weather and more UV light emerge in the spring. As the numbers vaccinated increase, that too might tempt governments to relax a bit more – but they will probably wish to see the beneficial effects of vaccination coming through in case numbers as well.

The vaccine is very good news for sentiment, as we have seen in recent weeks, and should allow full relaxation sometime next year – assuming the test results are reflected in results with the wider populations on the rollout. Investors are then left with three major questions to answer:

  • How many of the accelerated changes that Covid-19 measures induced will stay with us?
  • How much long-term damage has been done to the many sectors and companies that lost heavily during lockdowns? |
  • Who will pay the bills for all the extra borrowing governments and the corporate sector have undertaken to see them through?

We are looking to a world with fewer shops and more online sales, slimmed-down travel with less commuting, a new generation of recapitalised hospitality businesses to follow the damaged sector we have today – and a strong further push to decarbonise by governments hitting oil and gas-based activities.

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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