Article

The pandemic has a further sting

Equity markets are discounting a fast pace of recovery in the second half of 2021. But investors need to watch out for those countries where lockdowns will need to intensify. The virus is not defeated yet.

| 5 min read

According to the European Centre for Disease Prevention, in the last two weeks, India experienced 4.8 million new cases of Covid-19. Brazil (805,000), Turkey (606,000), the US (750,000) and France (362,000) also suffered badly.

In relation to population, Hungary, Czechia and the Balkans continue to show high levels of total deaths from Covid-19 on the world-o-meter numbers. The US numbers should subside, given the very fast rate of vaccination now being achieved. The UK’s winter upsurge has subsided to very low levels, aided by the vaccination of most people in the higher “at-risk” categories.

The EU continues to top the tables for total deaths but should see some slowing in cases and deaths as it too accelerates a vaccination programme fraught, so far, with delays and difficulties.

The advanced countries have generally decided that they should press on and vaccinate all the at-risk people in their own societies before offering larger volumes of vaccine to emerging market countries without their own vaccine patents and factories.

The richer countries have set up a fund to help pay for more vaccine roll out in lower-income states, which will come to play a bigger part when there are more vaccines to spare. Pharmaceutical companies are under pressure to forego profit on their vaccines as AstraZeneca has done – and are being lobbied to pass the patents to others to make in countries that are currently without much vaccine supply. The companies are reluctant to do this, pointing out that fabrication is complex and there could be quality and liability issues if others were allowed the rights.

Wide-ranging vaccination the answer

From the pattern of outbreaks so far, it seems that a country cannot usually impose sufficient social distancing and related laws to stop a second or third surge in the infection. There may be a seasonal pattern to the outbreaks, with hopes that the Northern hemisphere summer will again this year see some let-up in the virus even in places without sufficient vaccine cover.

The base case of most professional investors assumes a relatively early unlocking in the UK, based on wide-ranging vaccination, quickly followed by the US. The EU will take a bit longer but should see decent relaxations by July.

There is less clarity about how it will pan out in the current most at-risk countries such as Turkey, India and Brazil. Governments there are worried about the impact of full lockdowns on economic activity and the ability of people to earn a living. The Indian health services have been unable to cope with the sheer volume of patients needing oxygen and intensive care in the worst affected places, including the capital city.

If we are fortunate, the virus will not change to resist the vaccines available. It is still going to take time to make and use enough vaccine to protect the rest of the world in the way the advanced world will soon be protected. Were the virus to mutate to undermine the efficacy of the vaccines so far used, doubtless there would soon be variants in the vaccines.

This, however, would require more production to be scaled-up to vaccinate all those who have already been vaccinated as well as seeking to widen the reach of vaccines. A mutating virus would heighten the divides between higher-income countries with vaccines and the rest. There would be further and longer periods of lockdown and social distancing, hitting the balance of economic activity.

Lower income countries’ dilemma

The impact on a country such as India will be worrying. There will not be the same extent of financial support as the West has been able to afford from the government to deal with people whose jobs are stopped or greatly reduced by lockdown rules. There will need to be plenty of relief to ensure people have access to food and other necessities. There is likely to be rule-breaking by people desperate to keep some income coming into their households, elongating the time needed for lockdown to work.

The government of Mr Modi clearly hopes to soldier on without a proper lockdown will nonetheless see the virus subside. Lower-income countries will suffer from outbreaks and from the delays they face in getting enough people vaccinated.

Meanwhile, equity markets continue to look forward to the fast pace of recovery anticipated in the second quarter of 2021 against poor comparisons. Investors need to watch out for those countries where lockdowns will need to intensify and be prolonged, owing to the persistence of this virus, as this will set back the recovery there.

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.

The pandemic has a further sting

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