COVID-19 vaccine: Have the global markets priced it in? UBS tells where to invest

Global markets have been on a high on the back of positive developments across the COVID-29 vaccines. As per brokerage house UBS, in a scenario where the world comes close to herd immunity by the end of 2021 either by the rapid rollout of vaccine or if the efficacy of the vaccine is high, market moves could seriously accelerate.

However, the brokerage added that it will not be easy to get 3-4 billion doses next year, and preparing for deep refrigeration storage. Markets are likely to price the vaccine development in now before acknowledging logistical challenges, it further explained.

UBS also noted that since April, vaccine hopes have contributed a median 15.3 percent upside across markets. Liquidity has been the main driver of markets over the last six months, but its contribution has flattened over the last two months, however, recently, the vaccine hope has become a bigger driver, it stated.

As per UBS, the vaccine is 80-85 percent priced in growth stocks while 60-70 percent priced in Value stocks, therefore have more upside potential.

The brokerage estimates further 3-4 percent gains for growth indices and 6-7 percent for value indices before the vaccine is fully priced in.

A growth stock is one that has shown above-average earnings and has the potential to grow faster than the overall economy while a value stock has a lower valuation relative to the company's financial performance.

UBS further noted that small-caps were nearly three times more sensitive than large caps on major vaccine news days, implying further potential outperformance of small-caps as compared to large-caps in case of a vaccine.

It added that Value indices are also more sensitive than growth on a vaccine. While higher rates will weigh on growth stocks broadly, UBS prefers growth over defensives.