Pfizer, a global pharma giant, yesterday announced the development of the first effective Covid-19 vaccine which is claimed to have shown over 90% efficacy.

Key reports about the vaccine are:

The technology used by Pfizer requires two doses, three weeks apart.

The vaccine showed 90% protection seven days after the second dose – in US, Germany, Brazil, Argentina, South Africa and Turkey

Pfizer foresees supplying 50 million doses by the end of 2020, and around 1.3 billion by the end of 2021

The vaccine will be distributed free in the US, which raises question about the speed of roll-out for the rest of the world. Having said that, as per Bloomberg, Moderna, another pharma company, has used a similar technology as Pfizer and will announce its efficacy results by the end of November, potentially followed by Johnson & Johnson (a one-shot vaccine) and Astra Zeneca before the end of 2020. We understand that China is already conducting trials of its vaccine in several countries, including Pakistan. Therefore, the remaining two months of 2020 are likely to bring more positive news flow on the vaccine, following the well-received election of Joe Biden as the next US President.

Global markets and risk assets have surged

Global markets have reacted, with the key US and European indices up c.3% to 4% in yesterday’s session. Meanwhile, crude oil rose 9% while the USD strengthened against other major currencies. Safe haven assets such as gold fell 5% and the JPY/USD depreciated c.2%. A successful vaccine, given a swift global rollout across 2021, would mean the removal of travel restrictions, rebound of consumer demand and tourism, and potential withdrawal of stimulus measures during the year. GDP forecasts for major economies will be revised upwards and that in turn will lift crude oil and other commodity prices.

Pakistan’s Economy: Is the honeymoon period over?

The development of a successful vaccine is no doubt a major catalyst for all global economies and markets, including Pakistan. Since the authorities were able to contain both the outbreak and the economic fallout before the vaccine (gains could be relatively moderate), the event could have mixed to possibly negative implications for the major economic indicators in Pakistan.

Sectors: Time to add more banks and oil in the portfolio

We advocate increasing allocation to E&Ps and Banks given the prospect of higher oil prices, which is likely to lead to higher interest rates. Overall consumer demand will not be much affected; however, profit margins will be checked by rising international commodity prices. In the cyclicals space we would also trim positions and tilt towards the quality names.

(IMS Research Team)