Applied philosophy - Vaccination rates and equity returns

Vaccination programmes hold the promise of our lives returning to normal. Countries that have reached a high enough threshold in vaccinating their populations have been able to gradually open up. We were expecting equity markets to have had higher returns in these markets since vaccinations started in December 2020 but have found little relationship between vaccination rates and performance. In our view, short term returns are difficult to predict and we therefore prefer to focus on the long term using valuations as our anchor.

The economic recovery seems to be gathering pace as we shift from talk of whether governments and central banks provide enough stimulus to inflation, tapering and rate rises. This is happening with the backdrop of rising new cases and deaths globally, albeit with increasing regional differences. While some developed countries are gradually opening up, emerging markets (EM), especially India, are fighting another wave of the pandemic. We suspect this trend may continue due to the unequal distribution of vaccines, which has favoured economies that could afford to buy early and stock up enough doses to vaccinate a large proportion of their population.

We believe there is a connection between the speed of the economic recovery and the pace of reopening. How quickly a country emerges from lockdowns and how willing its citizens are to go out to shops and restaurants is partly determined by their vaccination rates, in our view. Vaccination programmes started around the middle of December in countries which were early adopters. Most of them were countries that had domestic R&D and manufacturing capacity for vaccines that were quickly authorised.