Active Thinking

At GAM Investments’ latest Active Thinking Forum, two of our brightest investment minds discussed results from recent Covid-19 vaccination studies and commented on global growth and inflation.

27 September 2021

Jenna Denyes – Healthcare Equities

September has delivered both positive and negative developments regarding Covid-19. On the downside, it now appears likely we will continue to see new variants of Covid-19 given pockets of vaccine hesitancy and uneven vaccine distribution. Meanwhile, data from Pfizer and Moderna has shown that protection offered by vaccines wanes after approximately 12 months, following which breakthrough infections increase and hospitalisations rise. This should not be considered surprising as humans have a long track record of having weak immune responses to coronaviruses. However, on the positive side, rivals Pfizer, Merck and Roche are all making progress in developing oral Covid-19 therapies with Phase III trial results expected soon. In addition, a report published in the New England Journal of Medicine (NEJM) based on data from over one million people in Israel has highlighted that the Pfizer–BioNTech vaccine reduces the risk of adverse events compared to infection¹ . Specifically on myocarditis (heart inflammation) – a particular concern linked to jabs – data shows that the vaccine was associated with a very small excess risk of myocarditis (1 to 5 events per 100,000 persons) compared to Covid-19 infections which led to more negative events (11 events per 100,000 persons).

A separate US study has found that the risk of developing myocarditis is six times higher among male teenagers who have contracted Covid-19, compared with the likelihood of the extremely rare side-effect emerging after receiving the Pfizer–BioNTech jab² . Overall, Pfizer and Moderna’s successful work to develop Covid-19 vaccines has been an important validation for the use of mRNA, a type of genetic medicine which biopharmaceutical companies have been developing for more than 20 years. We anticipate mRNA therapies will continue to drive the pace of innovation in the genetic medicine space, bringing both treatments to areas of unmet medical need as well as considerable commercial returns across the space. Even so, the validation does not mean other parts of Pfizer or Moderna’s product pipeline are totally transformed or fully de-risked and for the moment, the companies’ respective valuations, in our view, remain high.

Julian Howard – Multi-Asset Solutions

From a macro perspective, Composite Purchasing Managers’ Index data infers that while the global economy is not yet in a contraction phase, growth is losing momentum despite economies reopening. This has not been helped by weaker US consumer sentiment of late, where the Delta variant of Covid-19 is preventing a full return to normality. With regards to inflation, we are seeing evidence of price increases in durable goods starting to ease off and supply being gradually restored to the labour market. In our view, it is hard to see aggressive monetary policy tightening in this environment. Beyond Covid-19, we regard climate change, ageing workforces and inequality as major long-term headwinds to future growth. As a result, we favour stocks that could benefit from a low-growth, low-interest-rate world. In the bond market, while government debt retains long-term structural and diversification benefits, we believe longer-dated corporate bonds should be approached with caution. In terms of risks, we view potential policy errors from central bankers (those desperate to normalise policy regardless of conditions) as a major risk. In addition, a world where Covid-19 becomes far more benign or even mutates into harmlessness could prompt a cyclical rally and higher rates, which would be a risk to those investors favouring growth stocks. Finally, we are keeping an eye on the US dollar; it appears to be tracking Covid-19 caseload, which could lead to volatility in emerging markets and ex-US unhedged investors should this go up.