The Bargain Basement Bounces Back!

The announcement of a 90% efficacy rate of the Pfizer/Biontech COVID-19 vaccine in Phase III trials had a dramatic effect last week on stock markets, in spite of the lack of details.

Over the week, the FTSE 100 index rose from 5900 to end on Friday at 6316, up nearly 7% on the week. For once, it even outperformed the World index, which rose only 2.4% (in US dollars) on the week.

With the FTSE 100 being dominated by long-term underperforming sectors such as Oil & Gas and Banks, this outperformance illustrates the potential beginning of a “catch-up” trade by these laggards. Of course, the question remains: Can it continue into 2021, or is it merely a form of “dead cat” bounce?

We should bear in mind that further positive COVID vaccine news is likely to come from other pharmaceutical companies such as the US Moderna and AstraZeneca (in partnership with Oxford University), who also have vaccines in Phase III trials at present. .

Barclays Capital: The Race to a COVID-19 Vaccine Heats Up


The FTSE would not be my favoured “Value” stock market

The first point I would make is that the UK’s FTSE is not the only stock market index that has lagged over this year, and indeed over the last few years.

We know that overall, the US stock market (and in particular the tech-laden Nasdaq) has beaten the rest of the world soundly in stock market performance terms over the last few years, especially over 2020 to date.

However, there are interesting pickings among ex-US world indices right now, which could be considered value alongside UK stocks. I am thinking of Japan (represented below in purple by the BGFD Baillie Gifford Japan investment trust) and Europe ex UK (represented in green by the BRGE Blackrock Greater Europe investment trust). Both of these have beaten an investment in a US S&P 500 ETF in pounds sterling (VUSA, in cyan) since October 2019.

And yes, that is the FTSE 100 index trailing in last (in dark blue)...

Europe ex UK, Japan have outperformed the S&P 500 and FTSE in sterling terms


This comes back to a lot of research done on the risk of “home bias” (see