LET’S HOPE VACCINE NATIONALISM IS NOT THE START OF A LONG-TERM TREND

LET’S HOPE VACCINE NATIONALISM IS NOT THE START OF A LONG-TERM TREND

This week we saw some exceptional vaccination rates as the UK powers towards its target of vaccinating all over 50s before the middle of April. With around 4m doses administered, there is a good chance of beating this by a week or two. The under 50s might have to wait awhile, however, as prioritising second doses and new export restrictions on vaccines from both Europe and India means the pace of immunisation looks set to fall.

A lot has been made of the row between the UK and EU over vaccine contracts and there is a worrying dynamic at play. The EU, perhaps naively, signed contracts on the basis of global free trade continuing, while the UK and US have used their leverage to gain preferential treatment wherever possible. While this looks prescient in the short term, it’s yet another nail in the coffin of globalisation. While it’s possible that an increase in vaccine production capacity means this particular issue is short lived, a trend towards trade nationalism would be bad news for a country recently embarking on a solo global trading project.

EUROPE: MORE COVID RESTRICTIONS WEIGH ON FUTURE GROWTH

Headlines this week have been all about the political dispute over who gets which vaccine when. The slow rate of vaccinations and increase in infections is creating a strong headwind for economic recovery in the region. This week saw further restrictions imposed in parts of France, Germany and Italy, when it had been hoped that restrictions would be eased instead. The OECD already has a lower growth forecast for the EU compared with the UK and US and a number of other forecasts are already being downgraded due to difficulties bringing the virus under control.

The EU now expects 70 per cent of adults to be vaccinated by the end of the summer (compared with UK government forecasts of 100 per cent by the end of July) and the inability to lift travel restrictions could have particularly negative effect on countries like Spain, Italy and Greece. One estimate this week suggested another lost summer would knock 2 to 3 per cent of GDP growth in Spain and Italy.

MARKETS: LONG COVID RECOVERY FOR GLOBAL EQUITIES

It is a year since the bottom of the market following the Covid-inspired crash and global equity markets have seen a remarkable recovery. Despite 12 months of rolling restrictions and regional lockdowns, the S&P 500 is up 75 per cent since its low, while the MSCI World index is up 69 per cent. These two indices fell around 26 per cent from peak to trough last year. Even the UK, which has seen considerable underperformance, is up around 44 per cent from its low, having fallen 35 per cent from peak to trough in March.

Central bank support and government stimulus, plus hopes of a swift recovery, helped global equity markets overlook the distress caused to economies by the enforced restrictions and many markets are sitting comfortably above their pre-pandemic valuations. The progress of government bonds has looked a little different. After strong performance in the early months of the pandemic, fixed income has lagged as money flowed to technology and growth stocks. More recently bonds, government bonds in particular, have fallen in value as investors’ concerns about inflation and rising interest rates have risen.

EQUITIES: ASTRAZENECA’S TROUBLED VACCINE ROLL-OUT

Pharmaceutical giant AstraZeneca has endured a difficult few months, as the roll- out of the vaccine developed in partnership with the University of Oxford hit a number of problems. The vaccine was quickly approved for use in the UK and is the basis for the national vaccination programme. But it has struggled with slower approval in the EU and US, while a lack of clarity about some of its trial data means it has struggled with a perception that it is less effective or unsafe for some people. The company has also been caught out by the rise of vaccine nationalism as countries struggle to source vaccine doses.

The company is producing the vaccine at cost during the pandemic (helped by large amounts of government funding) and the boost to its share price in the first few months of the pandemic has faded. The missteps in publishing accurate trial data, as well as the political fallout, means the company risks eroding any goodwill it had built up during this time as well.