5 Asset Classes That Will Be Impacted On Positive Vaccine News Flow And How?

As we are still grappling with Covid 19 threat and long for some quick solution, there is now a buzz around vaccines that may be rolled out soon. Previously, Pfizer and then Moderna claimed that their experimental vaccines in the last stage trial have shown remarkable efficiency (of more than 90%) against coronavirus treatment. In fact, they have now approached the drug regulator so as to approve their vaccine's emergency use against the pandemic. Earlier, the US health officials said a coronavirus vaccine would need to be at least 50 per cent effective before they would consider approving it for use.

Meanwhile, other companies' such as Oxford-Astrazeneca based on its results said that its vaccine can be 90% efficient. Alongside there is news that US can receive the vaccine as early as mid-December. So, with the positive news on vaccine front coming from everywhere hopes are high that if the vaccine results continue to be positive, this pandemic situation will be put to an end by next year.

Now coming straightaway to the main topic, how the likely availability of Covid 19 vaccine in the near term would impact various asset classes. Here is experts' assessment on the same:

Covid 19 pandemic at first wreaked havoc globally, resulting in record number of deaths and led to economic turmoil. Global markets witnessed a stock market rout in late March and while during that time gold gained appeal as a 'safe haven' asset, it also eroded in value as investors' covered positions in the precious yellow metal to make up for the losses in equity.

And now the likely impact:

Equities:

First the run up to the US presidential election and then Joe Biden's victory and now the latest news flow around Covid 19 vaccine availability at a sooner date is fuelling optimism in the stock markets globally. US stock markets on Friday however ended lower on rising coronavirus infection, new shut downs and also weighed on the developments around fiscal stimulus.

Back home, even despite the huge volatility, Indian markets are recording new highs every other day with Nifty close to hitting 13000 levels and Sensex already surpassing 44000 points in trade today. Other than positive anticipation on the vaccine front, what is favouring the Indian street is better than expected Q2Fy21 earnings. While policy measures such as the Stimulus 3.0 rolled out by the centre are also aiding the sentiment which gave a boost to the housing sector and brought in 10 more sectors into the PLI space.

"The valuations of the market are high and it is in favor of risk in the short term. The rally in an economy facing stocks is over and now the focus will shift to their performance. However, in the medium-to-long term, the markets will grow," Bansal-.Business Head, PMS-Equity, Karvy Capital said.

Also, he is of the opinion that unless the fundamentals and demand are strong markets will not rise going ahead. And sees good prospects in FMCG, IT, auto and consumer durable space.

Dollar:

Dollar which also similar to bullion gains appeal amid economic distress will falter as vaccine availability will rekindle hopes of faster global economic recovery from the coronavirus led fall-out. Additional factors that would weigh on the movement of the US dollar include dole out of the fiscal package in the US as well as ongoing soft interest rate stance. And in view of the progress made in the vaccine, Citibank earlier said that the USD may be dragged by as much as 20 percent in the year 2021.

Crude:

Crude has been gaining on vaccine optimism as also on hopes that OPEC+ which comprises OPEC, Russia together with other producers will keep the supply in check. Nonetheless hopes of demand revival were to an extent offset by growing lockdowns in several parts of the world. Brent crude futures rose to $45.13 a barrel while U.S. West Texas Intermediate crude gained 4 cents, or 0.1%, to $42.46 a barrel. Since last week both benchmarks had increased by 5%.

 

Gold

Going forward too despite the sharp run since last year, gold will run up in price owing to several positives including loose monetary policy, dwindling geo-political situation. 

Even dollar's softer trajectory going forward due to the economic recovery on coronavirus vaccine availability shall better gold's prospects and there shall be investment demand in the precious yellow metal that is expected to pick up. 

Also the global stimulus led liquidity will find its way into gold investment that shall also support its prices on the higher side. 

 

Bonds

There are expectations that risk-on sentiment will play out negatively in short term with the US bond yield moving higher gradually. Further higher inflation triggered due to stimulus will push yields higher and bond prices lower and thus push investors to hedge position in currency.

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