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Markets await vaccine for Covid-19

TheStar Sat, May 23, 2020 12:00pm - 1 day ago

Search for vaccine: Office workers wearing face masks to help curb the spread of the coronavirus heading to work in Bangkok. Thailand recently announced it expects to have a vaccine for Covid-19 ready by next year after finding positive trial results in mice. — AP

Renowned value investor Bill Miller surprised many recently when he said he was bullish on aviation stocks.

Going against the tide, Miller said he was putting his money on the stocks of several US airline companies. This was despite the fact that the overall sector’s prospects were among the hardest hit by the Covid-19 crisis.

So, what is his rationale?

Well, it can be summarised in one word: vaccine.

Miller reportedly said: “If you don’t own the airlines, then you’re making a bet against the vaccine.”

“People love flying and don’t worry about catching polio or smallpox; if there is a vaccine, that will eliminate all the issues people have about flying and these (stocks) will come back very, very quickly, ” the founder and chief investment officer (CIO) of Miller Value Partners told a group of investors recently.

Well, the same argument can be made for the market in general.

Effective treatment

According to Eastspring Investments Bhd CIO of Multi Assets, Rudie Chan, market volatility will remain high in the short term and investors will need to be cautious amid the ongoing fallout of Covid-19.

“While the debate right now is about whether we get a V- or a U-shaped recovery, we see a recovery in the next two quarters, ” he says.

“One thing we would like to remind investors is that the Covid-19 infections will taper off eventually, especially when there is news of a vaccine. This will lead to further appetite for riskier assets like equities, ” he adds.

Indeed, a vaccine is what investors and the general public worldwide is hoping for to fight against the deadly Covid-19 virus that has wreaked havoc on the global economy and cast a staggering gloom over growth prospects far and wide.

A vaccine, or at least an effective drug, they say, is key to allowing countries and economies to fully reopen, and return to some semblance of normalcy.

While the synchronised fiscal and monetary stimulus packages have provided short-term relief to the global economy and financial markets, a remedy for Covid-19 is still the main signal for investors to return to the market in full force, one fund manager says.

“Without a vaccine, or any effective treatment, for Covid-19, the risk of a second wave of infections remains a real concern, and it will prevent economies from returning to normal.

“Investors will therefore remain cautious, and markets will continue to be very volatile, ” he tells StarBizWeek.

At present, several governments, led by the United States and China, and pharmaceutical and bio-technology companies have been investing billions of dollars in the race to develop a vaccine to end the Covid-19 pandemic.

Among the companies racing to develop a cure to the virus are American firms such as Moderna, Inovio Pharmaceuticals, Gilead Sciences and Johnson & Johnson; Hong Kong-listed CanSino Biologics, which is based in China; British drugmaker AstraZeneca; and France-headquartered Sanofi.

Rally on vaccine hope

Over the week, major equity markets were lifted by news of a possible vaccine for Covid-19, following encouraging early results for experimental therapies by Moderna and Inovio respectively.

The US stock markets, for instance, rose strongly at the start of the week, with Dow Jones Industrial Average gaining 912 points, or 3.85%, on Monday. That was the index’s best daily performance since April 6, driven by initial positive news on Moderna’s vaccine trial.

Moderna’s shares rose 20% to an all-time high of US$80 on Monday.

Taking the cue from the US markets, Asian stocks, including Malaysian equities, rallied on Tuesday.

Nevertheless, the optimism only lasted for one day, as the next day saw health news publication Stat highlighting the limits of Moderna’s vaccine and the long and uncertain path ahead.

But encouraging news on another potential Covid-19 vaccine – this time by Inovio – helped lift US stock markets once again on Wednesday. The development even outweighed investor worries over escalating tension between China and the United States.

According to Prudential Financial chief market strategist Quincy Krosby, the ultimate phase for the market and for the overall trajectory of the economy, and the path towards a semblance of normalcy, is the vaccine.

“During May and June, there will be a series of announcements on progress in the development of therapeutic treatments and vaccines based on Covid-19 trials.

The results from testing and these trials will be as essential for investors as is continued US Federal Reserve and congressional support, ” she wrote in her recent commentary.

“The promise of effective and available therapeutic treatments will help underpin the market’s ability to broaden and enjoy ‘risk on’ performance, serving as confirmation that Americans – as both consumers and employees – feel comfortable about the country’s attempt to open the economy, ” she added.

Meanwhile, Thailand recently announced it expects to have a vaccine for Covid-19 ready by next year after finding positive trial results in mice.

The Thai vaccine is currently being developed by the National Vaccine Institute, the Department of Medical Science and Chulalongkorn University’s vaccine research centre.

Krosby noted the market would remain headline-driven as to news on the virus: its direction, new cases, therapies, vaccines and the push to get the economy back on board.

“We need to keep in mind, however, that a market that has climbed so forcefully will need to consolidate, as overbought conditions demand new catalysts, ” she cautioned.

Rising stocks

To be clear, Covid-19 related-issues are not the only factor moving the market today.

There are other concerns as well such as the re-escalation of US-China tension.

But as long as the pandemic doesn’t seem to be under control, the downside risk will continue to be substantial.

While the world waits with bated breath for a vaccine against Covid-19, healthcare-related and biotech stocks have been rising – some by multiple folds – as investors place their bets on which company will win the race to find the cure.

For instance, Inovia’s share price has risen by almost five-fold since the beginning of the year, while Moderna’s share price has increased four-fold year to date. Both stocks are listed on the Nasdaq.

In Hong Kong, CanSino’s shares has risen by almost four times since the beginning of the year.

How long can these stocks sustain the gains remain to be seen, given the conflicting news of vaccine progress. But one thing’s for sure, the company that can win the race in developing an effective vaccine or treatment for Covid-19 is set to make huge gains.

Meanwhile, in Malaysia, glovemakers are the clear winners amid the onslaught of the Covid-19 pandemic, thanks to rising demand for their products. The share prices of these companies such as that of Top Glove Corp Bhd, Hartalega Holdings Bhd and Kossan Rubber Industries Bhd have in recent weeks risen to their multi-year highs.

Overall, the Malaysian equity market closed lower yesterday in tandem with regional trends.

Snapping seven straight days of gains, the benchmark FBM KLCI fell 15.35 points to 1,436.76 yesterday. At that level, the market was trading at about 17 times price-earnings.

Some analysts are of the opinion that the market has run ahead of its fundamentals.

Rakuten Trade Sdn Bhd research head Kenny Yee, for one, had cautioned that the higher the market strengthened (ahead of its fundamentals), the more dangerous it is for it to decline further.

“We have to be very cautious of the reason why the market has moved up steadily over the past few weeks. It’s all liquidity-driven without any fundamentals, ” Yee said.

He argued the only way the market could have a more solid footing was with the emergence of a vaccine and when the pandemic cleared.

Rakuten projected that the FBM KLCI would close at around 1,400 points at the end of 2020, based on 15 times earnings.

Similarly, Eastpring noted the main drivers of a sustainable rally in the current situation are the availability of a credible vaccine, and the ability for people to go about their normal lives without the fear of being infected by Covid-19.

Till then, volatility will continue to rule the market.

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