Covid jabs are at the sharp end of political risk

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A decade ago, if analysts wanted to put a price on a pharmaceutical stock, they usually did so by looking at the company’s balance sheet, studying its cash flow, calculating its debt burden and scrutinising its patents and drugs pipeline.

Today, things are rather different. For weeks, newspapers in Europe have been filled with tales of the “vaccination wars” between the UK and EU over the distribution of the BioNTech/Pfizer jab and the safe use of the Oxford/AstraZeneca one.

Politicians on both sides are now scrambling to stop this lose-lose fight. Let’s hope they succeed. But even if they do, the saga illustrates a bigger point: anyone running a pharma company these days, or investing in one, not only needs to think about patent risk and debt payments but must take notice of political risk too.

To put it another way, it is not just the balance sheet that matters to pharma groups now — it is also questions such as “Will there be a trade war?”, “How can we measure populism?” and “Is politics in the region looking stable?”. Political risk packs a punch that pharma executives, engaged in what they assumed was an effort beneficial to the whole world, did not expect to see in the west.

Is this simply a function of the Covid-19 shock? Perhaps. During the past year, western governments have bailed out their national economies to an extraordinary degree, which inevitably means that the nature of the political system and culture impinges more than before. The pandemic has also forced us to think about the ties that do (or do not) unite and define communities.


However, it might be dangerous to think — or hope — that these political risks will disappear when the pandemic ends. The year-long crisis has left most of us yearning for a sense of “normality” when Covid-19 recedes, and it is temptingly easy to assume that any such state will also deliver a sense of political calm.

But that assumption might be wrong. Tina Fordham, a former political analyst at Citi who has now moved to the Avonhurst consultancy group, points out that when the 2008 financial crisis ended, it did not lead to political peace. Nor did the ensuing — remarkable — economic recovery in the US. On the contrary, the past decade delivered rising populism, in spite of economic growth, which eventually led to events such as the Brexit vote and the election of Donald Trump.

Fordham thinks we might see a similar pattern play out in the post-Covid world. After all, as she argues in a thought-provoking new report called “Vax Populi” (a play on the Latin vox populi, or “voice of the crowd”), there are reasons to expect more political upheaval. The pandemic has ­cruelly exacerbated the gap between winners and losers. And while some countries are trying to address this (the Biden administration, say, with a $1.9tn stimulus package), it will be tough to do so in the post-pandemic world because government resources will be constrained. In any case, Covid-19 has revealed striking variations in the degree of government efficacy and social trust, and countries where these are lacking could be prone to populism.

Fordham reckons that China and Germany, for example, are likely to rebound fast from the pandemic, with relative political calm, because they have functioning systems of government, if variable rates of success in containing the pandemic and administering vaccines. She rates the UK’s chances too, which might come as a surprise to many British people, but Fordham cites the successful vaccination programme as a factor that has reinforced social cohesion.

But countries such as the US and France seem more prone to upheaval, or “vax populi risk”, she argues, due to a combination of high vaccine hesitancy, high Covid-19 deaths and a polarised political landscape. Emerging market countries such as Turkey look considerably worse.

Any resulting domestic populism means that “vaccine nationalism, misinformation and trade-related tensions will increase” too, says Fordham’s report. So much for hopes of a summer peace.

Fordham is not the only one making gloomy predictions. The insurance company Aon and consultancy EY have also recently warned clients about the risks of political volatility in a post-pandemic world. Financiers are furtively discussing the chance of a looming populist onslaught; just this week, hedge fund Bridgewater published a study of past wealth taxes, noting that these can arise when populism coincides with sudden societal shocks, such as war.

Of course, the counterpoint to these warnings is that many also expect a post-pandemic economic rebound. Indeed, the hope among investors is that we will see a new “Roaring 20s”, the type of party-like atmosphere that erupted in the aftermath of the 1918-20 flu pandemic. If so, that might reduce the likelihood of political volatility — or it will if the fruits of any rebound are distributed in a way that seems fair.

But “if” is the key word here. As the vaccine fight in Europe shows, concepts of what is “fair” vary wildly right now, both between countries and inside them. Hence the challenge of determining how political risks will play out in this new pandemic and post-pandemic landscape. Just ask AstraZeneca.

Follow Gillian on Twitter @gilliantett and email her at gillian.tett@ft.com

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