LONDON: Forget economic data releases and corporate trading statements -- vaccine rollout progress is what fund managers and analysts are watching to gauge which markets may recover quickest from the Covid-19 devastation and to guide their investment decisions.
Consensus is for world economic growth to rebound this year above 5%, while Refinitiv I/B/E/S forecasts that 2021 earnings will expand 38% and 21% in Europe and the United States respectively.
Yet those projections and investment themes hinge almost entirely on how quickly inoculation campaigns progress; new Covid-19 strains and fresh lockdown extensions make official data releases and company profit-loss statements hopelessly out of date for anyone who uses them to guide investment decisions.
“The vaccine race remains the major wild card here. It will shape the outlook and perceptions of global growth leadership in 2021, ” said Mark McCormick, head of currency strategy at TD Securities.
“While vaccines could reinforce a more synchronised recovery in the second half (2021), the early numbers reinforce the shifting fundamental between the United States, eurozone and others.”
The question is which country will be first to vaccinate 60%-70% of its population - the threshold generally seen as conferring herd immunity, where factories, bars and hotels can safely reopen. Delays could necessitate more stimulus from governments and central banks.
Patchy vaccine progress has forced some to push back initial estimates of when herd immunity could be reached. Deutsche Bank says late autumn is now more realistic than summer, though it expects the northern hemisphere spring to be a turning point, with 20%-25% of people vaccinated and restrictions slowly being lifted.
But race winners are already becoming evident, above all Israel, where a speedy immunisation campaign has brought a torrent of investment into its markets and pushed the shekel to quarter-century highs.
Shot in the arm
Others such as South Africa and Brazil, slower to get off the ground, have been punished by markets.Britain’s pound meanwhile is at eight-month highs versus the euro which analysts attribute partly to better vaccination prospects; about five million people have had their first shot with numbers doubling in the past week.
Shamik Dhar, chief economist at BNY Mellon Investment Management expects double-digit GDP bouncebacks in Britain and the United States but noted sluggish eurozone progress.
“It is harder in the eurozone, the outlook is a bit more cloudy there as it looks like it will take longer to get herd immunity (due to slower vaccine programmes), ” he added.
The euro bloc currently lags the likes of Britain and Israel in terms of per capita coverage, leading Germany to extend a hard lockdown until Feb 14, while France and Netherlands are moving to impose night-time curfews.
Jack Allen-Reynolds, senior European economist at Capital Economics, said the slow vaccine progress and lockdowns had led him to revise down his euro zone 2021 GDP forecasts by a whole percentage point to 4%.
“We assume GDP will get back to pre-pandemic levels around 2022.The general story is that we think the eurozone will recover more slowly than US and UK.”
The United States, which started vaccinating its population last month, is also ahead of most other major economies with its vaccination rollout running at a rate of about five per 100.
Deutsche said at current rates 70 million Americans would have been immunised around April, the threshold for protecting the most vulnerable.
Some such as Eric Baurmeister, head of emerging markets fixed income at Morgan Stanley Investment Management, highlight risks to the vaccine trade, noting that markets appear to have more or less priced normality being restored, leaving room for disappointment.
Broadly though the view is that eventually consumers will channel pent-up savings into travel, shopping and entertainment, against a backdrop of abundant stimulus. In the meantime, investors are just trying to capture market moves when lockdowns are eased, said Hans Peterson global head of asset allocation at SEB Investment Management.
“All (market) moves depend now on the lower pace of infections, ” Peterson said. “If that reverts, we have to go back to investing in US tech stocks for good or for bad.”
In a separate development, bitcoin slumped 10% to a 10-day low before paring some of its losses Thursday as traders feared tighter US regulations.
The world’s most popular cryptocurrency Bitcoin was last down 10.6% at US$31,724. It has lost about 27% of its value after touching a record US$42,000 on Jan 8.
The pullback comes amid growing concerns that bitcoin is one of a number of financial market price bubbles.
Fears that US President Joe Biden’s administration could attempt to regulate cryptocurrencies have also weighed on sentiment, traders said.
During a Senate hearing on Tuesday Janet Yellen, Biden’s pick to head the US Treasury, expressed concerns that cryptocurrencies could be used to finance illegal activities.
“I think many are used, at least in a transactions sense, mainly for illicit financing, and I think we really need to examine ways in which we can curtail their use and make sure that money laundering does not occur through these channels, ” said the former chair of the US Federal Reserve.
Joseph Edwards of cryptocurrency broker Enigma Securities said these comments had a substantial impact.
“The action over the last 36 hours or so has largely been rippling outwards from the Janet Yellen comments on crypto, ” he said, adding that it was still unclear exactly what, if any, moves the Biden administration would take. ‑— Reuters
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