Vaccine news puts growth back into The City: Moneyfarm’s investment chief
This week’s news that pharmaceutical giant Pfizer and German manufacturer BioNTech had reached a breakthrough in the development of their Coronavirus vaccine led to one of the heaviest trading days since the height of the pandemic crisis, with nearly $2 trillion changing hands across global markets.
Firms across The City are in an upbeat mood as the announcement that the vaccine is more than 90 per cent effective in preventing Covid-19 may signal a ‘light at the end of the tunnel’ for many firms.” City PM caught up with Richard Flax, the chief investment officer of London-based digital wealth manager Moneyfarm.
Finally some good news for the financial services industry.
Monday saw quite an interesting day in financial markets. No, seriously – it was. Pfizer’s announcement prompted a very sharp rally in European equity markets. European equities rose 5% or more, even the long-suffering UK market caught a bid, while safe havens like gold and government bonds sold off. Online brokerages fell over, prompting howls of indignation from day-traders unable to lock in their retirement trades.
Are we not reading too much into this?
Perhaps. But the noteworthy part was the relative weakness in the Nasdaq [which fell 1.5% on the day]. US tech stocks have powered the recovery this year, but the prospect of a viable vaccine sent investors searching for unloved alternatives.
“In a post-Covid world, digital businesses look expensive.”
Richard Flax, CIO of Moneyfarm
Sounds familiar.
Our interpretation is that we’re back in a growth vs value discussion, here in The City and elsewhere. Remember that in a Covid-19 world, digital businesses rule. They clean up in terms of advertising revenue and sales. Traditional businesses suffer. They have rent, they pump oil, they borrow short and lend long in a world of zero interest rates. And growth stocks crush value stocks, at least in terms of performance.
But in a post-Covid world, where growth begins to recover, alternatives begin to emerge. Digital businesses look expensive. Their multiples are high, their prospects perhaps over-hyped, at times. And then everyone starts thinking about things like mean reversion and hoary old sayings like ‘trees don’t grow to the sky’, like they said about Amazon in 2014, 15, 16, 17 and so on. It probably explains why Zoom fell 17% on Tuesday.
So what does this mean for the Square Mile?
It means that we have some interesting questions to answer. First, is the vaccine for real? Can it be distributed on a broad scale even if you need to keep it at -80C until it’s administered? Second, will it prompt a broad-based economic recovery? And third, will that recovery support the unloved stocks that the rally of 2020 has so far largely left behind?
If the answer to all three is yes, then value could outperform growth. European equities could beat the US, and the Nasdaq might languish, if only briefly. This week’s markets suggest that the answer is indeed yes. We’ve had days like that before, and they’ve faded. But maybe this time will be different.