A Covid-19 vaccine is a highly anticipated scientific breakthrough which we may see in 2021. Learn the potential impact of such news on the market and economy once approved for people around the globe.

A World Racing for a Vaccine

One scientific achievement highly anticipated by mankind right now is the discovery of a thoroughly vetted vaccine for Covid-19. It is expected to signal the beginning of end of the pandemic. It would also be seen as a confidence booster for investors as a precursor to economic recovery. However, Wall Street investors are likely to instead take a “look and see” approach.

As of late August, the official numbers for cases from Covid-19 worldwide have hit over 23 million with 800,000 deaths. This is startling data considering it has been less than year since the onset of the outbreak in December 2019 that was later declared a pandemic in March 2020.

On the economic front, global GDP has declined by -4.9%. Malaysia has had its worst ever GDP contraction since the global financial crisis with a -17.1% GDP contraction. Other countries are also seeing a GDP contraction with US -32.9%, UK -21.7%, Mexico -18.9%, Italy -17.3%, Philippines -16.5%, Singapore -13.2%, and Indonesia -5.3%.

Economic Recovery?

After Malaysia experienced economic output loss equivalent to RM69 bilion in nominal value, we hope for changes in the economy and positivity for the stock market once a working vaccine is available. A recovery is expected even though it will likely be bumpy.

Currently, most countries are experiencing some sort of recovery phase in the 2nd to 3rd quarter. Despite the continued spread of the pandemic and fears of subsequent waves, most economies cannot afford another lock-down. Many countries are also wary of 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 remains concerns of high unemployment and shifting customer behaviour with reduced spending. Therein lies the risk of economic stimulus failure and deflation.

Vaccine Impact on Markets

Markets continue to move, often in a knee-jerk fashion, to the latest news about Covid-19 treatments and vaccine candidates often moving above 1 standard deviation. For example, on May 18 [stock_market_widget type=”inline” template=”generic” color=”default” assets=”MRNA” markup=”{name} ({symbol}) {currency_symbol}{price} ({change_pct})” api=”yf”], a pharmaceutical company in America, released a report from a phase 1 trial of its Covid-19 vaccine candidate that showed all 45 participants produced antibodies. The stock market jumped by more than 3%.

Then on May 19, a report surfaced that cautioned investors that the those trial result is inconclusive, when the data about neutralizing antibodies was only available for 8 patients. And, also taking into consideration the lack of evidence on whether those antibodies will last in patients’ bodies. The stock market expectedly 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 seeing a working vaccine ready by mid-end 2021. Thus rubber gloves and face masks manufacturers cam expect consumption to remain high for at least another year.

Sectors hit badly by COVID-19 such as airlines, cruises, hotels, travel, and hospitality will take much longer to fully recover. It may be an opportunity though for value stocks that have been beaten down in price to shine.

Other key factors to look out for aside a working vaccine include the US Presidential elections this November, global trade tensions, and the unemployment rate.

Conclusion

A vaccine may be a positive indicator to start back full economic recovery similar to pre-pandemic conditions. However, we need more good news before the markets can fully recover and a vaccine may not be enough. Overall, it is not a sprint for the market to climb back, as it will take at least a few years for everything to be normal again. Or at least as the new normal.

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What do you think will happen to the market after Covid-19 vaccine is announced?