Coronavirus recovery: vaccine scepticism poses a threat to stock markets
- While there is no question policymakers are loathe to reimpose nationwide lockdowns, investors downplay the threats posed by Covid-19 at their peril
- Markets are underpricing risks of new lockdowns in several major economies. Assuming that a vaccine will end economic disruption looks increasingly shaky
Yet, as the pandemic rages on, global stocks stand near record highs, with the MSCI All Country World Index up around 10 per cent since June 21. Measures of volatility remain subdued.
In Bank of America’s latest fund manager survey, published on Tuesday, respondents said they felt more confident about the global economy. Nearly half of those polled say they believe the recovery is in an early cycle phase, compared with 37 per cent who say the world remains in recession.
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This is partly because the resurgence of the virus, particularly in Europe, is concentrated among younger people and has not yet resulted in a renewed spike in hospital admissions and fatalities.
By being more tolerant of new infections and focusing on reducing the strain on health care systems and lowering mortality rates, policymakers can take a less disruptive and more surgical approach to fighting the pandemic.
In a report published earlier this month, JPMorgan summed up the new narrative taking hold among investors: “Governments can adopt a different approach to managing the second wave. Broad-based shutdowns are not needed. Instead, governments can focus more on limited local controls.”
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First, there are deep divisions among epidemiologists about the appropriate response to the virus resurgence. Persistent problems with testing and tracing regimes, as well as signs that the disease is starting to infect the elderly again, could force governments to reintroduce sweeping restrictions.
Second, markets are underestimating the extent to which the response to Covid-19 has become politicised. This threatens the perceived safety and efficacy of a vaccine – the most important determinant of the longer-term outlook for the global economy and markets.
Only 21 per cent of Americans would agree to get inoculated as soon as possible if a vaccine became available, with 77 per cent of Democrats saying that if one became available this year, their first thought would be that it was rushed through, according to a YouGov/CBS News survey published last week.
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As if misjudging the threat posed by the virus was not enough of a threat to sentiment, the refuge from the Covid-19 crisis is now being put to the test.
Nicholas Spiro is a partner at Lauressa Advisory