Investors should avoid being “too gung-ho with their portfolios” following the emergence of a Coronavirus vaccine, warned Laith Khalaf, financial analyst at AJ Bell.
Commenting on the development of a new vaccine developed by Pfizer and BioNTech with a reported 90 percent success rate, Mr Khalaf told fundeye that even if life was closer to returning to a sense of normalcy following nine months of lockdowns, travel restrictions, and social distancing measures, the economic effects of virus-containing policies could be felt for a long time.
He explained: “The vaccine result clearly raises hopes that a return to normality is within touching distance, and while that is extremely positive for markets and businesses, we should be mindful that the economic impact of the pandemic is still being felt around the globe.”
Mr Khalaf noted that the surges across investment markets, along with the sell-offs in safe-havens like gold and bonds, only reflected an immediate response to the news.
While the promise of a vaccine might result in a definitive readjustment within markets, AJ Bell's financial analyst believed the long-term economic situation remained in question.
As a consequence, while it was likely that there would be a transition away from safe-havens, investors needed to be wary of setbacks with the vaccine, and also the possibility that the economy will be significantly effected by to the disruption.
Mr Khalaf said: “Many stock prices have jumped in response to the news already, and so already reflect an improved outlook. Often the initial knee-jerk response of markets to big events, positive or negative, is an over-reaction which is tempered over time.”
Rather than completely readjusting stock selection and turning over portfolios, he believed the wisest course of action was to gradually pivot to more aggressive strategies while being mindful of risks.
He argued: “Drip feeding money into the markets regularly remains a sensible course of action for investors, to take advantage of any dips, and to keep a lid on market risk in case of an unforeseen setback.”
Alongside notes of caution, Mr Khalaf also offered suggestions to investors following the vaccine announcement. He believed that the FTSE, could benefit from any potential reappraisals of cyclical oil and financial stocks, which he considered unfairly unloved despite consisting of a large part of the index.
Continuing his theme of wariness to potential setbacks, he also suggested that technology companies would continue to be attractive even if their appeal began to wane.
He said: “There’s still a long way to go until the world returns to normal, and in the meantime these digital businesses are servicing new audiences, picking up higher revenues, and potentially making new long-term customers to boot.”
Established in 1995, AJ Bell is an investment platform based in Manchester, UK. It is responsible for assets under administration totalling £56.5 billion, and supports 295,000 customers.
