On 9 November at 14:45 South African time Pfizer, the renowned multinational pharmaceutical business famed for, amongst other achievements, being the developer of Viagra, announced phase three results of the Covid-19 vaccine they have been developing with German company BioNTech.
These results showed the vaccine is 90% effective at producing immunity against the Covid-19 virus. Subsequent trials have shown them to be even more effective.
It suddenly appeared as if mankind had scored a first goal against the virus. While we had not perhaps levelled the scores, at least we were on the board.
To paraphrase the well-worn Churchillian quote, while this was certainly not the end of the pandemic, nor even the beginning of the end, perhaps it is at least a sign that we are approaching the end of the beginning.
The reaction from global markets was swift and extreme. ‘Ready for take off’ was how one analyst described it. Stocks which have been completely out of favour in 2020, such as airlines and aircraft producers, rocketed.
The US shares of Delta, American and United were all up 15% on the day with British Airways parent IAG up 25%. Better than almost all was jet engine manufacturer Rolls Royce which, at one point, was up 90%.
Energy producers and banks also soared.
Market analysts often use the cliché “black swan” to describe extreme and unforeseen events that cause financial-market upheaval and volatility. But this announcement was described by one analyst as being like a “grey rhino” — a large, obvious scenario that is easily ignored until it suddenly charges.
What does this Covid-19 vaccine mean?
What has transpired since then is what the Financial Times of London has called a ‘rotation’ away from the stocks which have been in favour in 2020, such as tech heavyweights of Amazon and Google, towards the ‘value’ stocks which have been completely unloved and ignored for months such as airlines, energy producers, banks, real estate, and hospitality.
Zoom, the omnipresent video calling platform, has lost almost $40bn of market value since the announcement of the vaccine.
Investors were seemingly starting to “price in” the post pandemic world with consumers once again booking cruise holidays, going to malls, taking out home loans, and commuting to work as before.
Should the news on the vaccine front continue to be positive, and with another US pharmaceutical company Moderna also announcing on Monday positive results from their vaccine trials that look to be the case, then perhaps we can start to look forward to the post-pandemic economy.
Where do these Covid-19 vaccine developments leave SA investors?
All South Africans who have pensions or private savings invested in the domestic or global stock markets will have been exposed directly to these enormous swings of fortune. Famously, or perhaps infamously, the JSE is one of the weakest performers in global markets, especially if one strips out the Naspers family of businesses and resource producers. On that basis, ‘South Africa Inc’ is down almost 30% this year.
Bellwethers of the South African economy which have traditionally been cornerstones of South African pension fund portfolios such as Standard Bank, Sasol and Bidvest are all substantially down over the last twelve months, hurting savers and pension fund holders.
However, since the vaccine was announced these businesses have seen a sharp reversal in their fortunes. Nedbank strategists note that while still lower than a year ago, in the last 10 days businesses like Sasol, Standard Bank and Bidvest are all up by more than 20%.
This is undoubtedly good news and will be much relief for long suffering South African savers and investors.
Investors will have to watch closely as to how the vaccines are rolled out and what their success rates are to ensure that these promises are being delivered upon. Vaccines, no matter how effective they might be, will need unprecedented manufacturing and logistics investment to be widely accessible and effective. In addition, many of those who are wary of vaccines will be unwilling to risk any potential side effects.
However, if these downsides can be managed, emerging markets such as South Africa could be among the biggest beneficiaries of a potentially dramatic reversal of post-pandemic fortunes.