UK share markets have enjoyed a couple of quite-incredible days, lifting some of the gloom that’s defined 2020. The FTSE 100 closed at its most expensive since the middle of August after news of a Covid-19 vaccine breakthrough on Monday. And it’s continued its incredible ascent today. At 6,270 points, the UK’s blue-chip index is up almost 500 points from a week ago.
It’s possible that Pfizer’s planned vaccine could be the silver bullet that UK share investors been looking for. The endless cycle of economic-destructive lockdowns could be drawing to a close.
As chief investment strategist Alastair George of Edison Group commented: “The announcement of an efficacious vaccine is the long sought after ‘game changer’ in the battle against Covid-19… While it will still be some time before social restrictions can be lifted, investors are skipping to the end of the pandemic movie.”
George adds that the news, allied with Joe Biden’s US presidential election victory over the weekend, means that “2020’s risks have diminished significantly.”
Hold up!
I, for one, am not getting too giddy over the latest development and what it means for UK share markets. There are a number of key questions that still need to be answered, and likely won’t become apparent for some weeks.
For example, does the vaccine protect against the severest cases of Covid-19? For how long does the vaccine provide immunity from coronavirus? Is it effective across the whole population, or is it a competent virus battler only among certain groups? And how will rollout of the potential vaccine work?
Words yesterday from England’s deputy chief medical officer Jonathan Van-Tam yesterday summed up the situation perfectly. He commented that news on a possible vaccine “is like a train journey where you’re standing on the station — it’s wet, windy, it’s horrible — and two miles down the tracks, two lights appear and it’s the train. And it’s a long way off. We’re at that point at the moment.”
Why I’m buying UK shares for my ISA
Only time will tell whether this week’s UK share price rally has been justified or not. My view though, is that investors still need to remain extremely cautious before splashing the cash. The battle against coronavirus could still have plenty of twists and turns before it’s over. The outlook for firms with fragile balance sheets, which are highly geared to a strong global economy, remains quite murky.
That said, I think now’s still a great time for UK share investors to keep building their stocks portfolios. I’ve continued to buy for my Stocks and Shares ISA in 2020 despite the uncertain economic picture.
Firstly, this is because UK share markets have a history of delivering excellent returns over the long run, even accounting for stock market corrections. And secondly, the stock market crash of 2020 still leaves plenty of top-quality UK shares looking too cheap to miss.