2nd Update November 2020

Good prospects of ending pandemic in 2021 A brief look at the vaccination issue


Significant progress on the vaccination front increases the chances that the pandemic can be ended in most countries during 2021. However, a short-term relapse into recession in countries in the northern hemisphere is no longer avoidable due to the sharp rise in case numbers. As the beginning of the resumption of “normal operation” of the most damaged industries is becoming apparent, the financial markets can see through the recession hole. Presumably, this is why the wave of insolvencies, e.g. in the tourism sector, has been able to flatten off considerably. A rotation into asset stocks and “pandemic victims” could continue.


Three breakthroughs at the vaccination front

In the past, time spans of 15 to 20 years from virus analysis to approval of a vaccine were common. There are currently 224 vaccine projects underway against Covid-19 worldwide, with successes reported for two vaccines: The protection of the corona vaccine “BNT162b2” from the German manufacturer Biontech and the US partner Pfizer is up to 95% according to recent reports. There is a high probability that emergency approval will be granted by the US Food and Drug Administration (FDA) and other regulatory authorities worldwide within the next few weeks. So far, according to both companies, “virtually no serious side effects” have been reported. 3.8% of the volunteers had reported fatigue and 2.0% headaches. The sample size is 43,000 worldwide, 50% of whom received the vaccine, while the other half received a placebo. Moderna, a US biotech company, also promises 95% protection (sample size: 30,000 volunteers). The vaccine manufacturer AstraZeneca announced a 90% efficacy rate.


Financial markets celebrated the prospect of ending the pandemic in 2021

The financial markets celebrated the good prospects of ending the pandemic in the course of the year, with significant gains in share prices and rising interest rates. The latter is a result of the markets expecting smaller rescue packages and therefore less dramatic increases in government debt. In addition, the prospect of a sustained, stronger economic recovery has been priced in.


Rotation in Covid-19 Loser clearest signal

However, the clearest signal that financial markets have confidence in the vaccines and expect a foreseeable end to the pandemic was the strong outperformance of sectors and stocks that were among the Covid-19 losers. Oil stocks, travel companies and airlines all posted significant gains. In general, a rotation into value stocks took place at the expense of growth stocks. For some time now, technology stocks on the NASDAQ have clearly underperformed. Small caps were also rotated at the expense of large caps.


The short term looks bad for the economy…

According to current data, the most likely scenario is that countries in the northern hemisphere will slip back into recession in the fourth quarter due to the second wave of infection and the lockdown measures triggered by this. This is the case for the EU economies. After strong GDP growth of almost 13% in the third quarter, a contraction of 2-3% in the last quarter of 2020 seems plausible. One month ago economists were still expecting quarterly growth of around 2%. Even the USA will hardly be able to avoid lockdowns soon.


… but the light at the end of the tunnel is clearly visible – this implies the mathematics of epidemics

It is likely that the first vaccinations will start in a few weeks. Large scale vaccination is expected to be carried out by mid 2021 or the fourth quarter of 2021. At the current infection rates, due to the very high vaccination coverage of 95% (if this figure is confirmed), “only” about 65% of the population would need to be vaccinated in order to avert the risk of a pandemic and end the lockdown measures. How is this figure calculated? Assuming that each Covid-19 infected without lockdown measures would infect an average of three people, it would only infect one person on average if 2/3 are immune. If we assume that 5% of the population are already immune (because they already had the disease) and the probability of getting the disease despite vaccination is 5%, the number x (how many % must be vaccinated) can be calculated as follows: x times 0.95 + 0.05 must be slightly greater than “two thirds” (result: 0.65). In other words, if 35% of the population were “vaccination refusers”, the risk of a pandemic would still be averted after 65% of the population has undergone successful vaccination. Presumably, therefore, there would be no need to introduce compulsory vaccination. Therefore, the euphoria of the markets – should the effectiveness of the vaccines be confirmed – is entirely appropriate.


Bankruptcy wave of Covid-19 victims can be greatly flattened

This would allow restaurants, hotels, tour operators, airlines and oil producers to return to normal operations by autumn 2021 at the latest. In anticipation of this scenario, enough lenders are likely to provide bridging loans so that the insolvency of many companies can be prevented after all.

Thus, investors who consider this scenario plausible can start to build up targeted positions in these sectors. When selecting stocks, however, care should be taken not to invest in the top third of the most existentially threatened, credit-unworthy companies. It goes without saying that the recovery potential is greatest in these companies. However, the opportunity/risk ratio is rather unfavourable, since a “land consolidation” and thus the market exit of the weaker companies is likely. Investors should focus on companies that are likely to survive.


Mutation risks

There are already more than 12,000 mutations of Covid-19, so the risk that the vaccines developed will be less effective against future mutations is not negligible. Therefore, the danger of a pandemic has not been completely eliminated and therefore the building up of positions in Covid19 victims should be done with caution and a sense of proportion.


Gold and gold shares lose some of their appeal

Gold and gold stocks are “victims” of the positive developments on the vaccination front and the inability of the US to pass the next government rescue package (financed by the FED). However, it may only be a matter of time before the balance sheet expansions of the FED and the ECB pick up speed again and additional rescue packages are launched.



Contact: Thomas Härter, CIO, Investment Office
Telephone: +41 58 680 60 44

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