Last Monday, Pfizer and BioNTech announced that their COVID-19 vaccine is more than 90 per cent effective in preventing the virus among those without evidence of prior infection. This positive result is the first out of six leading pharmaceutical companies currently developing a vaccine against the virus, which among others include AstraZeneca and Moderna.
The local stock market index (MSE equity total return) closed 1.6 per cent higher on Monday, followed by another 3.2 per cent gain on Tuesday. This recovery was mostly led by MIA, followed by the two leading local banks HSBC and BOV. Over these two days, MIA’s share price increased by 16.9 per cent, HSBC (+11.3 per cent), BOV (+9.4 per cent), SFC (+5.2 per cent) and BMIT (5.2 per cent). This reaction follows closely the performance witnessed in international markets with airlines, hospitality companies and banks all registering solid gains.
Investor sentiment, especially locally, remains largely impacted by the uncertainty of the duration surrounding the COVID-19 situation. Naturally, positive news on the vaccination has strengthened investor confidence, given that there is now a higher probability that a vaccine is developed and starts to be distributed as early as end of 2020. However, distribution challenges still lie ahead, especially when considering that Pfizer currently has the capability of producing up to 1.3 billion doses in 2021, which clearly is not enough to vaccinate the world population.
On a positive note, the vaccination process will be facilitated should there be more than one pharmaceutical company which obtains approval for its vaccine. Additionally, vaccination will lead to herd immunity, which refers to the concept that occurs when a portion of the community becomes immune to a disease (due to vaccination), therefore reducing the spread of the virus from person to person. As a result, the community at large becomes more protected, even those unvaccinated.
As things currently stand, it seems that the vaccine will start to be distributed during 2021, with full-scale vaccination process kicking-off in summer of 2021 and expected to last at least up to 2022. Another factor which should contribute positively towards economic recovery is the introduction of rapid testing, especially in terminals such airports and seaports. Rapid testing will naturally ease concerns of travellers and encourage consumer spending.
Yesterday, MIA held its annual general meeting in addition to issuing the 9-month performance for Jan to Sep 2020. In line with the COVID-19 vaccination timeframe discussed above, the airport expects its recovery to commence in the second half of 2021. This is based on the underlying assumption being that an authorised vaccine coupled with its widespread availability would significantly boost consumer confidence.
Banks have been underperforming prior to the outbreak of COVID-19 due to headwinds faced by stricter capital requirements and the low interest environment with investment-grade securities yielding negative returns. Following the onslaught of the covid-19 pandemic, the performance of Banks deteriorated further and valuations reached historical low levels, with the price to book multiple for European banks averaging at circa 0.5x.
Given that capital ratios remained well above regulatory requirements both locally as well as internationally, banks stocks are well positioned for recovery, especially should the European Central Bank enable the distribution of dividends and stock buybacks in 2021.
Investors should monitor current developments amid the significant volatility being experienced in markets. Additionally, investors should look for companies with strong fundamentals which can weather the current storm and pose to benefit from the eventual economic recovery. The development of a COVID-19 vaccine has now become more achievable, in fact, as stated by Pfizer chairman, “we can see light at the end of the tunnel”.
Disclaimer: This article was issued by Rowen Bonello, research analyst at Calamatta Cuschieri. For more information visit www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.