The most anticipated scientific achievement right now would be the development of a safe, effective vaccine for Covid-19.
It could signal the beginning of the end of the pandemic and it would boost the confidence of investors as a precursor to an economic recovery. But investors on Wall Street are likely to take a wait-and-see approach.
As at late August, the official number of cases of Covid-19 worldwide had hit over 23 million with 800,000 deaths.
This is staggering, since the outbreak last December was only declared a global pandemic by the World Health Organisation in March this year.
In this short span of time, global gross domestic product has declined by 4.9% and Malaysia has seen the worst ever GDP contraction since the global financial crisis of 2008, at 17.1%.
Other countries are also seeing their GDP shrink with the US shedding 32.9%, the UK, 21.7%, Mexico (18.9%), Italy (17.3%), the Philippines (16.5%), Singapore (13.2%), and Indonesia (5.3%).
Is an economic recovery in sight?
Malaysia experienced an economic output loss equivalent to RM69 billion in nominal value, and it is hoped that once a vaccine is available, the economy will improve and the stock market will rally.
A recovery is expected, though it will likely be bumpy.
Currently, most countries have seen some sort of recovery in the second and third quarters.
Despite the continued spread of the pandemic and fears of subsequent waves of infection, most economies cannot afford another lockdown.
Many countries are also wary of falling off an economic cliff as stimulus packages and loan moratoriums end.
On a more micro level, companies should be able to navigate these difficult times as long as economies remain open and companies adapt to the times.
However, there remain concerns of high unemployment and shifting customer behaviour with reduced spending. Therein lies the risk of the failure of economic stimulus and deflation.
A Covid-19 vaccine’s impact on markets
Markets continue to move, often in a knee-jerk fashion, according to the latest news about Covid-19 treatments and vaccine candidates, often moving above 1 standard deviation.
For example, on May 18, Moderna Inc, a US pharmaceutical company, released a report of a Phase 1 trial of its Covid-19 vaccine candidate that showed all 45 participants had produced antibodies. The stock market jumped by more than 3%.
Then on May 19, a report surfaced that cautioned investors that the trial results were inconclusive. The data about neutralising antibodies was only available for eight patients, and taking into consideration the lack of evidence on whether the antibodies would last, the stock market not unexpectedly responded with a decline.
It will take at least 12 to 18 months for vaccines to go through development and clinical trials, and a possible scenario is a working vaccine ready by mid- to end-2021.
So, rubber gloves and face mask manufacturers can expect consumption to remain high for at least another year.
Sectors that have been badly hit by Covid-19, such as airlines, the cruise industry and hotels, as well as travel and hospitality sectors will take much longer to fully recover.
This will however be an opportunity for value stocks that have been beaten down in price, to shine.
Other key factors to look out for, apart from a working vaccine, include the US presidential election this November, global trade tensions and unemployment.
Conclusion
A vaccine may be a positive indicator to jumpstart an economic recovery, similar to pre-pandemic conditions. However, more good news is needed before the markets fully recover and a vaccine may not be enough.
Overall, it is not a sprint for the market to climb back, it will take at least a few years for everything to return to normal again. Or at least a new normal.
This article first appeared in MyPF Follow MyPF to simplify and grow your personal finances on Facebook and Instagram.
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