Markets are climbing back up again after vaccine news – but who is benefitting?

The optimists are right and the pessimists are wrong. That at least has been the conclusion of the global financial community about the possibility of having an effective vaccine against Covid-19 by the end of the year.

To take just one measure, FTSE 100 share prices, Monday’s jump of 5.72 per cent was the ninth largest one-day rise in the Footsie since it was created in 1987. And the data company Refinitiv calculates that the jump of 85 per cent in the Rolls-Royce share price is the largest rise for any company since 1987 too.

So, huge relief. But what does it really say, aside from the fact that global investors were pretty desperate for some good news? There are, I suggest, two positive messages but also a warning.

Message one is that big business can deliver the goods. It is global capitalism that has thrown its massive resources at the problem and won. This vaccine from Pfizer seems to be the front-runner but there are several others, including the Oxford University/AstraZeneca one. The big pharmaceutical companies of the west are not perfect, and indeed neither are the giants of other industries, but they have done something that has never been done at this pace before.

There is, however, a fascinating twist to that message. This is not just about the success of big business. It is also about the triumph of venture capitalism. The pioneering development was done by a medium-sized German company, BioNTech, founded by two Turkish immigrants, a married couple, Ugur Sahin and Ozlem Tureci. This says a huge amount about the ability of the western financial system that, for all its faults, it backs dedicated, clever people with good ideas. It also says something wonderful about the contribution immigrants can make not only to their host country but also to the world at large.

Thus two sides of the western market model, in the world’s largest and fourth largest economies, have come together to rescue the world economy. And in the coming weeks there will be other developments from other companies that help us cope better with this dreadful disease too.

The second positive message follows on. We can reasonably expect some sort of return to normality next spring. If you look at the detail of those share movements on Monday, a move carried on through Tuesday, the big rises were in firms that had been hardest hit by the pandemic. Rolls-Royce was the most dramatic, for normality would mean that people will start flying around the world again, but also the hospitality industry and the mainstream companies that have been hardest hit by the shutdowns.

By contrast, companies that have boomed thanks to the artificial life we have all been living in recent months have been pegged back. Zoom shares fell from $500 (£377) last Friday to $413 on Monday night. That does not mean that we will stop using Zoom or that the new normal will be the same as the old normal. There will of course be some ways in which the changes we have made in the ways we work and live will stick. But they will stick because we want them to, not because we have been forced to make those changes by governments and employers, or indeed by fear.

That bounce in the markets is trying to say that we will no longer be frightened by Covid-19 in our daily lives. Next year will see a relief boom. That point was made directly  by veteran ad man Sir Martin Sorrell, who thinks that 2021 will be a rerun of 2010, when the US Troubled Asset Relief Programme finally helped the economy there recover.

“I am very bullish on 2021. We’ll have Tokyo ’21, the Euros, vaccines, better therapeutics and better testing,” he said.

He is right of course. But what about the warning?

It is this. Think back to 2010. Yes, it was a good year for the world economy, but it was a good year because 2009 had been such a bad one. It is easy to have a great leap forward if you start from far enough back. Just as the scars of the financial crisis lingered right through the following decade, so the scars of this one will take a decade to erase. The debts incurred then are with us still.

So why do the share markets not seem to care about this? The answer to that is that they know they will create liquidity to keep the economy moving this time, just as they did last. That money has to go somewhere and one of those places will be equities worldwide. The impact varies from country to country. In the US it is shares that are at all-time highs. In the UK, shares, despite these recent increases, are still a long way down from their peak, but it is house prices that are at the highest ever.

There is the social challenge. We should welcome the return to confidence evidenced by the markets. That is a sight better than the despair of recent months. But the biggest gainers of any asset boom are the people who already own assets. Those who do not yet have them – first-time buyers for example – have a higher mountain to climb. The challenge is to find ways to help them climb it.