Emerging markets surged on the prospect that coronavirus vaccines will soon be widely available, but analysts believe the rally is overestimated given the risks of slower deployment for some economies that could delay their recovery.
Several vaccines are now on the cusp of materialization, including at least two products in emerging markets, Russia and China, but budget constraints to pay for them and storage and distribution challenges cloud the prospects for many economies.
Brazil, Mexico, Indonesia, India and Russia are expected to be among the first to receive a boost from the arrival of vaccines, but in most emerging markets demand could exceed supply, according to analysts.
The logistical headache of transporting supplies to some of the more rural areas of major economies like India and poorer countries can also present obstacles.
“I think the ‘rescue rally’ for EM vaccines is overkill and driven more by sentiment than reality,” said Beth Morrissey, managing partner of Kleiman International Consultants focused on emerging markets.
“While I believe a range of possible vaccines will be approved for global use within a few months, the logistical challenges appear even more difficult than producing vaccines to stop the spread.”
Emerging markets struggled at the start of the pandemic in February and March, but investors have regained some confidence. Emerging debt flows reached their fourth highest level in a single week on November 18. MSCI’s emerging market equity and currency indices are close to 34 and 30-month highs, respectively.
But markets may not have fully taken into account the challenges some countries face in getting their populations vaccinated.
“Clearly, if emerging economies fail to immunize the majority of the population, the impact on consumer spending due to the continued need for partial lockdowns and moderate travel activity will be more severe than expected until here, “said Tatjana Puhan, head of management. director at asset manager TOBAM.
Emerging markets need more good news on vaccines in the coming months, especially ahead of the southern hemisphere winter, said Simon Quijano-Evans, chief economist at Gemcorp Capital. For the whole world to achieve herd immunity, there was still a deficit of at least 1.6 billion vaccines in 2021, he said.
AstraZeneca has said it will have 200 million doses of its vaccine by the end of 2020. The vaccine is considered one of the best prospects for many developing countries due to its lower price and lower price. ability to be transported at normal refrigerator temperatures. .
Brazil, Mexico, India and Indonesia are likely to be the biggest beneficiaries of the AstraZeneca vaccine among emerging markets, Deutsche Bank said in a research note.
But keeping any of the vaccines at stable temperatures can be difficult.
India is seeking five locally tested vaccine candidates as well as the Russian vaccine Sputnik V and the AstraZeneca offer. Investment research group TS Lombard said the country is also trying to increase its some 28,000 refrigeration units and 700 refrigerated trucks.
“Even if you look at India, which in recent years has made huge strides in the health and pharmaceutical industries, how can they transport a vaccine that needs refrigeration, without even considering which ones must be stored at 94 degrees Fahrenheit below zero, 3.28 million square kilometers quickly enough to inoculate enough 1.38 billion people? “said Morrissey.
Peru could also face difficulties, analysts say, as it has so far only secured the Pfizer vaccine, which is to be shipped and stored at -70C, although the government said earlier this month- ci that Johnson & Johnson and AstraZeneca laboratories would begin testing for the coronavirus. vaccines.
“With the third highest Covid-19 death rate in the world, Peruvians are hoping that the cold chain requirements of the vaccine they have purchased can be relaxed,” wrote Paul Domjan, senior analyst for the group. Tellimer investment research. in a note this week.
Russia, along with China, appears to be well placed with only major national vaccine research programs in emerging markets, Domjan wrote.
These two countries will also ship some of their supplies abroad.
The poorest parts of emerging markets should be covered by the COVAX global distribution system, co-led by the World Health Organization.
Even so, the positive boost to emerging markets in general from the vaccine could be over a year away.
Citi analysts said vaccine supply could be lower than demand in most emerging markets in 2021, with vaccines starting to boost most economies in the first half of 2022, compared to the fourth quarter of 2021 in countries. developed.
“It may not be until the end of 2022 or even later that enough vaccines will be available for the economies of low-income emerging countries with strained budgetary resources and limited capacity for domestic production,” said Citi analysts wrote in a note this week.
Goldman Sachs has a baseline scenario for herd immunity to be achieved in most emerging markets between late 2021 and mid-2022, with richer economies and those with a greater supply of vaccines reaching it more. early.