Mass vaccination is in full swing in many countries. How will it impact global markets? Pie Funds CEO and Founder Mike Taylor explains.
The Covid-19 pandemic has significantly changed the business – and therefore investing – landscape. Some sectors have barely survived, while others have thrived. And entirely new sectors have emerged completely. Places like the UK and the US are now well into their vaccination roll out, with many other countries following. Mass vaccination, and herd immunity through this, means borders will slowly open up and global economies will reopen. The business sector will change yet again, as people are able to get out and about more.
The new recovery phase
The first phase of the pandemic was characterised by a surge in demand for goods, particularly products that would help people work – and live extensively – from home easier. That was things like meal-kit delivery, digital tools like Zoom, office setups, and things like new pets and bikes. We often call these companies Covid beneficiaries. Some of these will continue to be in demand for a long time to come, as our habits have changed. For example many people have now incorporated cycling into their everyday routine, or perhaps still work from home a few days a week using digital tools.
Vaccination will usher in a recovery phase and this will release pent up demand for services and leisure. Don’t forget that many countries are still in and out of strict lockdowns, and some shops have been closed for a long time. What sectors will benefit from mass vaccination? Things like travel, entertainment, restaurants, and activities where people interact socially in groups. If they have survived up until this stage, they are expected to thrive. Many investors have already anticipated this move and have transitioned their portfolios to invest in sectors and companies they think will benefit from the reopening trade. Things like shipping delays and the ease of imports and exports should improve too.
The global economy will pick up
It’s still unclear how much of a boom the global economy will see, but economists estimate that 2021 and 2022 should be the biggest years for growth since the Global Financial Crisis of 2007-2008. In addition, central banks are mindful that the recovery from the GFC took over a decade. This time, they are focused on providing sufficient stimulus (think cash injections) to ensure that economies get back to full employment and that inflation is allowed to pick up from very low levels.
Spotlight on wealth
So far, wealthier countries have been in a better position to buy vaccines than poorer ones, and this may impact markets. But the 2009 Swine Flu epidemic in Asia – which affected many poorer areas and economies – did not slow country economic growth rates. So I expect that lower vaccinations in some poorer countries won’t hamper the global recovery this time. In addition to this, there is the global Covax scheme, which aims to ensure vaccines are shared fairly across all nations. And places like New Zealand are helping too – providing for our neighbouring islands like the Cook Islands.
What about travel and tourism?
Many surveys indicate that once vaccinated, people will feel safe to travel abroad. Travel and leisure is not dead. I would expect the trends that were in place prior to Covid to recover gradually over the next 2-3 years. New Zealand is viewed as a safe haven to many, so I think travel to our country will boom once borders open and travellers are vaccinated. Likewise many Kiwis will likely be excited to go overseas to visit family and friends, for business, and leisure too.
Our new bubble with Australia is a great start and over the next few months will give good insights into how people feel about travelling abroad. I would expect our borders to open once we have reached herd immunity from vaccinations, which is estimated to be the end of this year. At this point, I still think that the initial opening will be restricted to countries that are either within our bubble at the time, or to travellers that have proof of vaccination at departure.
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Information is current as at 20 April 2021. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary.