Post-pandemic recovery stocks run out of puff

On 9 November 2020, Pfizer and BioNTech announced that their vaccine for Covid-19 was more effective than almost anybody had hoped, with more than 90% protection against the virus. The news sparked a strong rally in global stockmarkets. Many sectors such as airlines and retail that had been crushed by the closure of the global economy surged on hopes that the world would return to normal, as did broader groupings such as emerging markets and value stocks.

One year on, the Pfizer/BioNTech vaccine and others have met all reasonable expectations. The world has partially reopened, even if a lot of government policies remain clearly irrational and panicky. Yet the outcome for markets hasn’t been as expected. Some much-touted bets have turned out poorly, while some huge returns have come from stocks that were supposed to fall out of favour.

Growth is beating value

We can certainly see plenty of big winners from reopening, especially in retail and leisure. In the UK, bakery chain Greggs and transport operator FirstGroup have both gained over 100%, as has Saga, which offers tours and cruises. But the MSCI World Value index returned 29% in sterling terms over the year, compared to 26% for the MSCI World Growth – a modest difference and one that vanishes if your starting point is one day later. And in recent months, growth has come back more strongly.

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Sectors such as airlines have done poorly on the whole, up 20% compared with more than 40% for technology. Some of the stay-at-home/work-from-home plays have fallen (eg, online fitness firm Peloton), but many of the tech heavyweights have kept soaring: Microsoft is up 60% and Alphabet up 70%. I’m personally relieved by both of those, because they have helped offset many of the emerging markets in my portfolio: the MSCI Emerging Markets index is up just 5% compared with 27% for the MSCI World.

There are obvious reasons for some of these disappointments. Travel restrictions continue to hold back airlines and are taking longer to remove than expected. Emerging markets have suffered from a slow vaccine roll-out, the loss of tourism and the many economic consequences of the pandemic. Some such as India, Russia and Vietnam have done well, but others such as Brazil are still suffering. Supply-chain bottlenecks, rising labour costs, and higher energy prices play a part, although many of these bring winners as well as losers: energy is up almost 60% over the year.

However, the broader lesson is that investors would rather bet on growth in these uncertain times, no matter how cheap value looks. With plenty of worries for the winter months ahead, there isn’t an obvious catalyst to change that.