Join our community of smart investors

Vaccine breakthrough: Should I start investing now?

Is Pfizer’s announcement a shot in the arm for markets or a stab in the dark?
Vaccine breakthrough: Should I start investing now?
  • Pfizer has announced that its coronavirus vaccine is 90 per cent effective
  • Global stock markets endured a day of madness

Pfizer’s (US: PFE) announcement of a vaccine breakthrough lit a fuse beneath the global stock markets, which shot higher on the news. 

In London, the down-and-out FTSE all share ended the day up 5 per cent, driven by huge share price gains in the companies for whom coronavirus has had the biggest impact: airlines, retailers and cinemas, amongst other cyclical sectors. The reaction of the S&P 500 was more muted – hardly surprising considering the index has been an apparent beneficiary of the pandemic and continues to hit all time highs. Indeed, many of the companies whose operations and shares have enjoyed outsized demand in 2020 – Microsoft (US: MSFT), Amazon (US: AMZN) and Apple (US: AAPL), for example – suffered knocks on the back of Pfizer’s announcement. 

In a bizarre reflection of the stock market’s original response to the pandemic (when rapid selling caused havoc for investment platforms), the rush to buy or sell stocks off the back of Pfizer’s announcement caused a surge in trading which many of the big investment platforms failed to cope with. Private investors reported not being able to access online trading systems in the US and the UK for most of the afternoon, meaning they missed out on the day’s gains, or failed to sell fast-falling stocks. 

Aside from providing a clear lesson in the dangers of trading, these reactions speak volumes about the short-termism which has been driving certain company share prices northwards this year. In London, Novacyt (NCYT) – which had risen more than one-hundredfold this year on the back of hype surrounding the need for more diagnostics during the pandemic – halved following Pfizer’s news. In New York, video conferencing company Zoom (US: ZOOM) closed the day down by almost a fifth. Investors seem to think that the world won’t need as much diagnostics, or video conferencing software once the pandemic has passed. 

An end to the pandemic would undoubtedly be a good thing for the economy and therefore most businesses should benefit from the steady progress of Pfizer’s vaccine. But are the markets truly back on stronger footing? To answer that question, we must take a deeper look at what vaccine success means. 

What did Pfizer actually say?

The test results revealed that only 94 of the 40,000 volunteers given two doses of vaccine or placebo at least seven days ago have developed symptomatic Covid-19. The study is blind (meaning the patients don’t know whether they received vaccine or placebo), but the study managers know that most of the patients who contracted the illness had received the placebo. 

But 94 cases of coronavirus is not a large enough sample size to say with confidence that the vaccine works. What’s more, the study doesn’t reveal how long the protective effect of the vaccine will last. US regulators have said they will accelerate the approval process, while manufacturers are already rolling out big batches of the vaccine to ensure ample supply when Pfizer does get the green light. But there are still many hurdles to overcome before a return to normality. 

When will a vaccine be available?

For most of the world’s population, access to Pfizer’s vaccine has much less to do with when it is approved than when it can be manufactured and distributed. This is problematic because injecting 5bn people with the two doses required for immunisation has been described as “the most daunting logistical challenge ever.”

Even in normal times and with a normal product, the scale of the task would be unprecedented. But nothing about this situation is normal. Pfizer’s vaccine must be stored and distributed at -68 degrees Celsius. That’s colder than most medical products or vaccines. 

What’s more, not many hospitals have the facilities to store vaccines at such extreme temperatures. Pfizer has attempted to sidestep the issue by developing a storage unit, but this only works for 10 days and can store a minimum of 10,000 doses. Small medical centres in rural areas can’t possibly hope to inject 10,000 people just 10 days after the vaccines’ production. Unless smaller boxes are developed, there is going to be a lot of waste. 

And that is all happening at a time when global supply chains are dealing with the severe fallout of a world in lockdown. Most supply chains, including pharmaceuticals, rely on the hold areas of passenger planes, but with passenger airlines operating at a fraction of their normal capacity, demand pressures on distribution networks are at an all-time high. Passenger airlines have therefore ramped up the prices of carrying cargo in their bellies. 

Pfizer’s vaccine therefore relies on a minute subsector of the cold supply chain, which is itself a sub-sector of the global supply chain which is facing incredible disruption from travel restrictions. The world should therefore not expect mass inoculation any time soon. 

Who gets the vaccine first?

Studies have suggested that the vaccine will be most effective if the most vulnerable members of the global population receive it first, irrespective of wealth. But that is not realistic. Economically strong nations including the US and UK are already pre-ordering huge volumes of vaccine, while German chemical companies will undoubtedly have their hands firmly grasped on the manufacturing process.

Meanwhile the logistical supply issues are far more problematic in poorer countries. Parts of Africa, India and South America – the latter two of which have had major coronavirus outbreaks – are going to be bottom of the list for the vaccine. Until all the world’s nations are vaccinated, virus eradication will be almost impossible.

So, should I start investing now?

Perhaps but, as always, with a firm eye on the future. Vaccine approval and launch might start the path to gradual recovery from the pandemic, but – contrary to what this week’s market movements suggest – it is not a magic bullet. Investors hoping to ride the wave of recovery should look for the companies which have the financial strength to hang on through several more months of turbulence and capitalise on opportunities when Covid-19 has finally retreated.