It’s the question a number of top fundies want answered: could emerging virus strains put markets right back where they started?
As vaccine roll-outs begin, more and more investors are hopping on the bull market. But Credit Suisse doesn’t think that the US will achieve anything approaching herd immunity until at least September of this year, while portfolio manager Mike Jenneke warned that new variants in Brazil and South Africa will only make the crystal ball cloudier.
“We know it’s a bit grey as to which vaccines work and which don’t, and the Brazilian variant is another factor altogether….Pfizer and Moderna are confident that they can change their vaccines to deal with them, but that will take time,” Mr Jenneke said.
“I don’t think there is enough focus on the difficulty of dealing with the variants. It will be solved – we’re confident that it will be solved. But there’s a pretty good chance that at the end of the year we’ll be having the same discussions about efficacy in regard to these variants.”
The “Manaus Strain” – named because it was first isolated in the Brazilian city of the same name – is capable of reinfecting people and has been blamed for skyrocketing cases in the country. That’s why it’s appeared on the radar of Magellan chief investment officer Hamish Douglass, who has been reading “two to three” scientific papers a day and believes that flaws in vaccine design mean markets are vulnerable.
“The question is could these variants evade immune responses, and the early answer is yes. People don’t think this is going to happen, but that’s part of human irrationality…if we don’t get smart quick we’re going to chase our tail making vaccine after vaccine as this mutates,” Mr Douglass said.
“The scientific evidence shows that the major vaccines are now only 10-60 per cent effective at preventing symptomatic infection in South Africa…all the media is popping the champagne corks about the UK and Israel, and we would say it’s completely irrelevant. What is relevant is where we’re up to in South Africa and Brazil, and whether these strains mutate.”
Of course, new strains of COVID-19 won’t necessarily have the same apocalyptic effects that the first wave did in March and April of 2020 – but that doesn’t mean investors aren’t ignoring the risk.
“The potential for an escaped mutation is the classic known unknown,” Mr Douglas said.
“We’re simply in the hands of natural evolution – it’s a lottery that’s playing out in front of us.”
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