Investors should add to cyclical stocks on weakness: Greed & Fear


Investors should look to add to cyclical stocks on weakness in the Indian markets, according to Christopher Wood of Jefferies.

In his research note titled ‘Greed and Fear’, Wood said, “Most notable to Greed & Fear was a 72 per cent and 38 per cent year-on-year increase in property sale registrations in Mumbai and Delhi last month, and 243 per cent and 70 per cent year-on-year so far in March due to the low base. Investors should look to add to cyclical stocks on weakness.”

The note said that the positive point for India is that it is a fast-emerging manufacturing centre for Covid vaccines.

In the best case, 2021 vaccine quantities for India could cover 78 per cent of the population, with Sputnik V, Johnson & Johnson and Novavax vaccines likely to be available in the second quarter of 2021.

The note said that this is clearly not the case for most emerging markets though. Consider, for example, the Philippines. Based on the data supplied by Regis, the Philippines is not due to get most of the vaccines it has ordered until the end of the year. Cumulative Covid vaccine arrivals are expected to be only 43 million by July and 143 million by December.

The note said that if the American macro story, as well as the policy context, remains fully supportive of the cyclical trade as does the vaccine rollout in the US, there has been a significant setback in continental Europe in terms of the slowness of the vaccine rollout which can definitely put back recovery there by a quarter.

“Vaccines in the Eurozone are running way behind Britain. The share of people who have received at least one dose of Covid vaccine is now 41.7 per cent in the UK, compared with only 9.5 per cent in the EU,” the report said.

“This has exposed the problem of the Eurozone as a political entity in the sense that undertaking a vaccine rollout is more akin to fighting a war and the EU has clearly never shown much aptitude for the latter activity,” the note said.

“There is now growing talk that the locked-up Brits will not be allowed to go on summer holiday in Europe this year! It is hard to know where post-Brexit political considerations meet public health considerations. But Greed & Fear’s sense is that the prime motivation is political,” the note added.

The note said that the vaccine rollout is critical given that it has become increasingly evident that Covid is a chronic condition and new variants will likely keep on coming, which is why the world needs to get used to living with Covid and why a new vaccine will probably be needed every year.

The good news is that the messenger RNA (mRNA) technology employed by the likes of Moderna and Pfizer can be easily tweaked for new variants, the note said.