The FTSE 100 has rallied of late. Since 30 October, the index has risen around 14%.
One big reason has been positive vaccine candidate news. In early November, Pfizer and its partner BioNTech SE released better-than-expected interim efficacy numbers for their Covid-19 vaccine candidate. Later in the month, Moderna also released better than expected efficacy numbers for its vaccine candidate.
In addition to the vaccine candidate news, I think there is potential for more good news ahead. Here are two reasons why I’d consider buying the index despite the recent rally.
The potential for better distribution
I am considering buying the FTSE 100 because I think governments around the world will do a better than expected job in terms of distributing and promoting vaccine uptake. This assumes a Covid-19 vaccine candidate will be approved and manufactured with no problems.
If governments exceed expectations with getting vaccines to people, I think the world economy could return to normal faster. And if that happens, I think the earnings many FTSE 100 companies could rebound faster than expected.
To me, the current expectations for the efficiency of distribution and the level of vaccine uptake seem very low. I believe expectations are low because of the difficulty of distribution, and the need to promote a very high uptake.
In terms of distribution, the logistics will very likely be challenging. Pfizer’s vaccine candidate, for example, needs to be stored around -94°F to keep its efficacy. Moderna’s vaccine candidate also needs cool temperatures, at around -4°F. Handling the vaccines will take substantial expertise on the part of hospitals and rural communities, many of which don’t have many resources as it is.
Given that the vaccine is new, a lot of people might also not want to take it right away. As a result, vaccine uptake might not as high as it should be.
Given the economic destructiveness of Covid-19, however, I think governments have enormous incentive to distribute as efficiently as possible. As a result, I think they will throw a lot of resources at it. Given the dedicated resources, I think the distribution will be better than expected.
If governments use economic incentives or media campaigns to promote uptake, I believe there is potential to beat the current uptake expectations too.
FTSE 100: Potential improvement in US-China relations
Given the rather poor state of relations between the US and China, I think there is potential for improvement between the two. If relations improve substantially, I think the Chinese yuan could strengthen and the FTSE 100 could benefit.
To me, a strong yuan would be a tailwind for oil prices. If the yuan is stronger, oil prices would likely be cheaper in China in terms of Chinese currency and there could be more consumption. More consumption could lead to stronger than expected oil prices in my view.
If oil prices are stronger than expected, I think FTSE 100 companies like BP and Royal Dutch Shell could benefit.