Wellesley WeeklyWatch – Sweet success: Pfizer-BioNTech vaccine trial and Biden-Harris election win
10 November 2020
At the time of writing, yesterday’s unusually positive news about COVID-19 means that stock markets are rocketing. Pharmaceutical company Pfizer and its German partner, BioNTech, have declared a ‘critical milestone’ in that their experimental vaccine offers 90% protection against the coronavirus – a world first.
This brings into view a potential end to a pandemic that has, to date, killed more than a million people worldwide, brought the global economy to its knees and changed everyday life as we know it. It would be premature to deduce what the impact of this vaccine news will be in the long-term, but it’s already boosted worldwide stock markets, including sizeable upturns in the share prices of companies in troubled sectors such as hospitality and transport.
Biden turns the tide
In other news, it appeared that the US election strife came to a head at the end of last week, as media networks were finally able to announce that Joe Biden was the next President-elect, with Kamala Harris as Vice President-elect. At the time of publication, Trump has yet to concede the outcome and his campaign continues to launch multiple legal challenges against the result – yet investors appear to have already moved on.
Markets have remained calm, despite the political upheaval. Major stock indexes in the US gained traction during the week, as was the case in Europe and Asia too. Whereas vote-counting appeared relentless due to unprecedented mail-in ballots, investor confidence didn’t waver. Wall Street’s VIX index, which measures expected volatility in US stocks, did in fact drop as the week progressed (see “In the Picture” below).
Now that the presidency situation is set to stabilise, what does the future hold for investors? Biden is likely to be inaugurated in January, yet he might come up against a divided Congress, where the Republicans control the Senate. In other words, it’ll prove more difficult for Biden’s administration to implement any major change.
Tax hikes, closer inspection of ‘big tech’, or tighter regulation of the energy, financial, or healthcare sectors will be less likely than if the Democrats had had the blue ‘tsunami’ that many had predicted.
However, the new administration is assumed to forge ahead and trail-blaze with an extra economic stimulus effort. Both Democrats and Republicans agree on the need for increased spending, and so a compromise will probably have to be found, although a divided house may restrict to what extent.
“A split in the balance of power within the House and the Senate will likely limit the scope of any forthcoming US fiscal package,” notes Mark Dowding of BlueBay Asset Management, a fund manager for St. James’s Place.
While he observes that a deal is likely, particularly for the worst-hit sectors like airlines and hospitality, “it is likely to fall well short of the multi-trillion spending plans that the Democrats had been keen to enact had they held control over all three branches of the Executive.”
Marching Ant (…or not)
Elsewhere in the world, the public listing of Ant Group, one of China’s biggest financial technology companies, was stalled last week. At around $37 billion, one of the largest initial public offerings (IPO) ever witnessed, the tech company planned to list shares in Shanghai and Hong Kong.
However, for reasons unbeknown to the public, regulators in Beijing called a halt. Officials have expressed concerns about “market stability” – perhaps linked to Ant Group’s size, structure, or investor appetite in its shares. Jack Ma, the official founder, has also recently made controversial statements about the need to reform the financial sector.
This delay might not be as worrying for investors as it might seem. Appetite for financial technology listings is fierce, says Martin Hennecke, Asia Investment Director at St. James’s Place. He adds that investors should be careful when participating in much-boasted opportunities in fashionable sectors.
“In the year preceding the 2000 tech bubble, we saw a massive surge in technology fund launches amid a similar surge in demand for such products. This illustrates a fundamental problem of the financial industry. What has done well in the recent past simply sells well due to what is known as the concept of ‘recency bias’”, he states.
He further adds: “Fast forward to today, with a surge in investor enthusiasm towards technology and healthcare/biotech IPOs, both in Hong Kong and Shanghai’s STAR Market lately, I would question if enough careful consideration and due diligence on each of those companies’ businesses is being done by investors nowadays.”
Breaking the bank?
The Bank of England announced last week that it will buy another £150 billion of government bonds (taking the total to £895 billion) during 2021, in a bid to boost spending and therefore the UK’s economic recovery. The news coincided with Chancellor Rishi Sunak’s U-turn to extend the furlough scheme until the end of March 2021, as the UK’s second national lockdown was enforced.
“This marks a significant increase in pessimism from the BoE on the permanent impact of the pandemic on the UK economy,” remarks David Page from AXA Investment Managers, a fund manager for St. James’s Place.
Still, investors in UK equities shouldn’t forget that the health of the UK economy and that of its leading companies are two different things.
There are many UK stocks whose presence in international markets, or whose expertise in certain sectors, protects against the performance of the UK in general.
“There’s no reason to be apologetic about being invested in the UK stock market”, says Richard Colwell of Columbia Threadneedle, manager of the St. James’s Place Strategic Managed fund.
He adds: “Yes, we haven’t got sexy, mega-cap US tech, but there are a lot of really good businesses – world-class businesses – and they’re not all beholden to the UK’s economy.”
The property market has been buoyed by Rishi Sunak’s Stamp Duty freeze and the “race for space”, both of which have driven the average house price to a record high in the 12 months to October.1
According to Halifax building society, the post-spring property price explosion slowed in October. With the UK now in its second lockdown, the outlook for house prices could turn.
Those planning on moving house between now and the end of March 2021 may find that the significant increase in the price of detached properties – compared to flats – means they’ve been priced out of the market. However, it may be that their desire to move leads them to look for a compromise.2
Melloney Underhill, Marketing Insights Manager at St. James’s Place, observes that buying a property that better meets the requirements and opportunities of the ‘new normal’ might sound appealing.
“But first you need to weigh up your own priorities and situation, in the context of the factors impacting the market. That’s where an adviser can help. As a minimum, they will provide a useful sounding board,” she adds.
The outlook may highlight the risk of being insufficiently diversified when it comes to investors whose property forms part of their retirement plan.
“As we move through autumn and into winter, the macroeconomic landscape in the UK remains highly uncertain,” states Russell Galley, Managing Director at Halifax. “Though the renewed lockdown is set to be less restrictive than earlier this year, it bears out that the country’s struggle with COVID-19 is far from over. With a number of clear headwinds facing the housing market, we expect to see greater downward pressure on house prices as we move into 2021.”
Your home may be repossessed if you do not keep up repayments on your mortgage.
1 Halifax House Price Index, Oct 2020
2 Halifax House Price Index, Oct 2020 (Flats grew by 2%, detached properties 6%)
In the Picture
Wall Street’s Cboe Volatility Index decreased last week – a sign that investors remained unruffled during the US election chaos. The index measures expected volatility over the coming month in large US stocks.
This is also a timely reminder that investors should always have a longer investment horizon to be able to take on more risk. It’s also worth putting this in context: in spite of the VIX index having fallen since March, it’s still approximately twice that of the long-term average because the pandemic is a bigger cause of concern for the world economy than anything else.
The Last Word
“While I may be the first woman in this office, I will not be the last—because every little girl watching tonight sees that this is a country of possibilities.”
– Kamala Harris, Vice President-elect of the United States.
The information contained is correct as at the date of the article.
Axa, BlueBay and Columbia Threadneedle are fund managers for St. James’s Place.
The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory
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