Vaccine trade: Buying indices of where the virus hit worse

A new trade is taking shape this week of buying indices like Spain’s IBEX and Italy’s FTSE MIB following vaccine news from Pfizer/BioNtech and now Moderna

 

Must know

  • European countries where the virus hit worst have been top performers in the past week, handily outperforming countries where the virus impact was lower
  • Moderna has released trial results showing its coivid-19 vaccine has a 94.5% efficacy
  • In the last month, the benchmark stock indices from Spain, Italy and Germany are up 16%, 10.2% and 2.5% respectively
  • Spain has had 40,769 total covid deaths, Italy 45,773 and Germany 12,573
  • Technical analysis: IBEX, FTSE MIB, DAX

 

Vaccine news

Global markets had another ‘vaccine Monday’ with the release of trial results from Moderna showing its own MRNA covid-19 vaccine was 94.5% effective. Moderna shares jumped double digits with CEO Stephane Bancel calling it a ‘game-changer’.

 

map covid

 

30,000 people participated in the trial and of those, just 95 were confirmed to have contracted covid-19. 90 of those cases were in the placebo group, while only 5 were in the group that received the vaccine. The results came from the firm’s ‘stage 3’ trial and the firm will now push for emergency use authorisation, which is expected to be approved.

 

Markets

The reaction across global stock markets was very positive with oil and gas stocks leading a 1.3% gain on the Euro STOXX 600. Breaking down the performance in stock markets country-by-country, the best gains were to be found in Spain’s IBEX 35, which was up a huge 2.6% and Italy’s FTSE MIB, which rose 1.98%. Germany’s DAX index lagged with gains of 0.47%.

 

What’s the trade?

A vaccine that brings the world back towards a sense of normality and greater economic optimism is of course good for companies and good for company stock. The trade that is currently playing out is that the areas of the market that were worst hit by the pandemic stand to benefit most from the pandemic being over. On a country level, the worst affected countries in Europe and amongst the worst in the world were Italy and Spain.

The trade coincides with a desire to switch to countries regions with healthier valuations than the United States, which is at record highs.

 

Index

Year-to-date

IBEX 35

-14.21%

FTSE MIB

-9.44%

DAX

-0.71%

 

Charts

The three charts below show the price action in three major European indices year-to-date. Germany rebounded much quicker than Spain and Italy but both those are now playing catch-up, with all three now at the highest level since March.

ibex-35-chart

ftse-mib-chart

germany-dax-chart

 

Conclusion

The biggest risk is that the trade has already taken place and investors readjust to indices with a more stable outlook, such as Germany. However, the trade could have room to go if there is more incremental good news on vaccines and therapeutics to treat covid-19 in the next few weeks, offering further catalysts for upside and confirming the current news flow.

 

How to play it

Index CFDs &

Index ETFs

 

 

Read our next article: Tesla stock pops on S&P 500 index inclusion- sell the news?

 

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