While daily increases in COVID-19 cases in many countries have increased sharply over recent months, global equity markets have generally risen and, in some cases, made record highs. Why have equity markets risen? A key factor is the expectation that vaccines for COVID-19 will allow activity to increase materially, particularly in those industries where social interaction is high (e.g. leisure and entertainment). Given their importance for markets, this article briefly discusses recent vaccine developments.
Soon after COVID-19 became a significant issue for the world the search for a vaccine began. While it has taken many years to develop vaccines, progress in relation to COVID-19 has been considerably faster. This reflects the amount of resources that have been applied to this problem and significant advances in biotechnology in recent years.
Since December 2020, several vaccines have been approved in some countries. These include the following:
- The BioNtech/Pfizer vaccine has a quoted 95% efficacy, according to Phase 3 trial data. It involves two doses and requires super chilled conditions, which can limit its distribution.
- The Moderna vaccine has a quoted 94% efficacy, according to Phase 3 trial data. It involves two doses and requires super cold storage for transportation.
- The AstraZenica/Oxford University vaccine has a 70% average efficacy rate according to phase three trial data. Cold, but not super-cold, storage is required for this vaccine.
Vaccines are now being deployed globally, with a focus on those people most exposed to the virus and those more susceptible to experiencing major virus-related issues (e.g. the elderly or people with pre-existing conditions). It will take several months before some of the benefits of vaccinations are evident. This is because the proportion of the world’s population that has been vaccinated is currently less than 1% and deployment takes time.
Developed world countries are expected to receive a high proportion of the vaccines that are available in 2021 as they have contracts with the vaccine suppliers. It is generally expected that around half of the US population will be vaccinated by mid-2021, with Australia likely to achieve that outcome in the second half of this year.
In summary, we have moved into a different phase of the COVID-19 environment, where vaccines are being deployed. This is expected to progressively reduce the number of virus cases and allow a relaxation of restrictions that have dampened the level of economic activity. While vaccines are a very positive development, there are risks. A key risk is that the virus mutates in a manner that materially reduces the effectiveness of vaccines. Another risk is that the immunity conferred by the vaccine wears off in a relatively short time period (a year or two). We expect that virus and vaccine developments, including second generation vaccines, will be an important influence on markets in 2021. Advances in the treatment of severe cases of COVID-19 have lagged behind the progress on vaccines. Progress towards effective treatments for severe cases will also influence markets this year.