On 9 November, pharmaceutical company Pfizer announced better-than-expected vaccine results, with “90% or more” efficacy in blocking COVID-19 transmission, according to the company. Expectations from epidemiologists were centered around 70% efficacy. Following the collection of further safety data for the vaccine, the company can then apply for Emergency Use Authorization from the US Food and Drug Administration (FDA). Citi analysts see the vaccine news as a first major advance toward a post COVID-19 world economy.
Pfizer’s vaccine higher-than-expected efficacy rate suggests a more rapid movement toward global immunity from COVID-19, with vaccine production and distribution being the constraint.
A healthcare solution to COVID-19 could have great potential to restore economic activity to its full potential, and lift deeply-depressed “socially-close” industries, more than any fiscal spending package or central bank lending program. In the process, it could generate savings for taxpayers and marginally reduce the inflationary impact of easy monetary policy, and could make extreme macro stimulus steps less necessary.
While parts of the world economy already saw a sharp recovery from the record drop of the initial COVID-19 shock, a much broader, self-reinforcing period of economic growth could follow COVID-19’s departure. This may not happen immediately on a vaccine’s announcement, but could depend on the effectiveness of the vaccine, supporting health remedies and others to come. But ahead of this economic benefit, Citi analysts think markets could stop treating COVID-19 as a permanent impediment to humanity.
A rotation from “stay at home” to “leave home” equities could begin – While digitization remains one of Citi’s long-term “unstoppable trends”, there could be more scrutiny about the sustainability of revenue and market share growth for many tech companies and more differentiation in their stock performance. A normalizing economy could push market valuations for many industries back in their pre COVID-19 direction.
Nevertheless, Citi analysts caution against assuming a perfectly smooth path in markets in pricing out COVID-19 as a damaging part of the immediate economic outlook. In particular, the latest COVID-19 infection rates in the US and Europe suggest coming months could still see significant growth constraints in the near-term. However, looking further ahead, Citi analysts continue to expect a strong broadening of the world economic recovery by 2H 2021 and further recovery in the global assets most impacted by COVID-19 into 2021.