During the last week the markets have been driven by the news that Pfizer’s coronavirus vaccine has shown a 90% effectiveness rate in the phase 3 trials. Today we have seen similar news from Moderna and on both occasions, we have seen strong moves in the markets. Although the news is an overall positive development, many questions remain and the markets will be looking for answers in the coming days.
What Do We Know About the Vaccine So Far?
The news about the vaccine from Pfizer and BioNTech wasn’t entirely surprising as we knew that phase 3 trials were going on. Similarly, the Moderna vaccine is also currently in phase 3 trials. In both cases, we are hearing that the efficacy rates of the vaccines are above 90%. This is much more than analysts or scientific experts had expected, considering that the vaccine has been developed in a short period of time.
A high efficacy rate will tackle some of the issues with the roll-out of the vaccine. Many people are sceptical about the vaccine given that the progress has been fast-tracked. Therefore, even if a vaccine is available many people will probably wait for some time before getting it to ensure that it is safe to take. This could prolong the time taken to immunise a large part of the population, but the high efficacy rate means that fewer people need to be vaccinated for herd-immunity. Scientists suggest that with an efficacy rate of at least 90%, herd-immunity could be achieved if around 60% of the population are vaccinated.
Since both vaccines are showing similar effectiveness rates, the demand for both companies should be quite similar. This will tackle the mass production issue to an extent as there will be two vaccines on the market. There are also other candidates in phase 3 trials, so it is possible that more vaccines will be available in the next couple of months.
One of the issues we are already aware of is the shelf-life for the Pfizer vaccine. The vaccine must be stored in freezing temperatures during transportation and once thawed, it must be used within five-days. The Moderna vaccine on the other hand seems to have a longer shelf-life, but in any case, we expect that governments will spend whatever is necessary to ensure that their doses are delivered on time.
How Long Will Immunity Last?
This is one of the big uncertainties that still exist. Earlier this year, antibody testing showed that those who had already caught the virus did not retain immunity for too long and the antibody count dropped within a few months. In the case of the vaccine, we expect immunity issues to remain. The Pfizer vaccine requires a patient to receive two doses, with the second dose being a booster. This should prolong immunity to an extent, but we do not have a clear timeline and it’s possible that the vaccine will need to be given at least once a year.
For the Moderna vaccine, we have not yet heard how many doses need to be provided, but as the vaccine is quite similar to Pfizer’s we can expect similar requirements. Another unknown is whether the vaccine can easily be modified for new strands of the coronavirus. The coronavirus is a family of viruses that have been around for a while, but the COVID19 strand has already mutated a few times. It will take some time before a vast majority of the global population is vaccinated so there is a strong possibility that further mutations take place. Therefore, a vaccine that can be modified with relative ease will be greatly beneficial.
There is also uncertainty about the safety of the vaccine. Although the latest results are coming from phase 3 trials, (which means that the vaccine has been tested on a large group) there is still a risk that certain side-effects may have not yet been seen. This is likely to be watched closely in the initial months when the vaccine is rolled out.
Trading the Vaccine News
Progress on the vaccine front is positive for all risk assets, but it will be most beneficial for the ‘reopening’ companies. These are the companies who were hit hardest by the coronavirus lockdowns and restrictions. This includes airlines, hotel groups, oil companies, food chains and more. In general, I will be looking at the hospitality sector as this is where the majority of restrictions were imposed.
I would also favour European equities over US equities as the European stock markets contain more value companies, which are yet to stage a full recovery. Meanwhile, in the US the major indices have recovered with the aid of the tech sector and growth companies. In the coming weeks, we will likely see a continued rotation out of the ‘stay-at-home’ stocks and into the ‘reopening’ stocks. Oil and commodity currencies are also worth taking a look at for long positions.
In the pharmaceutical sector, we should look at whether any vaccine is more suitable and favourable than others as such a vaccine would likely see greater demand in the longer term. It is important to understand that the recovery is going to take some time and as traders we have to adapt to market conditions. In this case, that means being prepared to hold out positions for at least 6-12 months in order to take as much advantage as possible from the current opportunities.