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Some positive signs emerging

04052020_COVID-19 Positive Update

Some positive signs emerging

We have previously written at length about our assessment of the evolving COVID-19 crisis, and the way investors might think about navigating the challenging market conditions that came with it. While conscious of the fact that there are only so many articles on the topic that readers need to see, today we add further hay to the stack, but this time with a more optimistic slant. Some of the developments that have caught our eye recently are unambiguously positive and may prove to be important in shaping the market environment over the next 12 months.

Firstly, we have read with interest reports of antibody testing carried out in the US and Europe.  There have now been several studies published that deal with (more or less) random testing of communities to determine the extent to which members of the relevant community have developed antibodies to COVID-19, indicating that they have previously been infected.

During April we saw several reports indicating that antibody test studies in Germany, the Netherlands and on the West Coast of the US were indicating a much higher incidence of COVID-19 than suggested by official case numbers. Orders of magnitude higher in several cases. This indicated that there may be large numbers of people who had contracted the virus and recovered without even knowing about it.

This finding is potentially important for at least a couple of reasons.  One is that is means the overall seriousness and fatality rate of the disease could be much lower than previously thought. If this turns out to be the case, then the implications of the virus spreading through communities could be considerably less dire than previously thought, and this has obvious implications for the ability of governments to re-open economies and for life to move back towards normality.

Another reason is the idea of herd immunity. If a larger-than-expected percentage of a community has already been infected and developed antibodies, the challenge of achieving herd immunity starts to look correspondingly easier. There are still big questions to be resolved around herd immunity, including the extent and duration of immunity offered by a given level of antibodies, but if these questions can be resolved favourably, herd immunity takes on much greater credibility as a way of managing the disease.

There has, however, been one big issue with the antibody tests – the specificity, or rate of false positives that the tests give. If for example you find that 4 per cent of the population tests positive, but you also know that your test has a specificity in the range of, say, 0-5 per cent, then you haven’t really learned anything. All your positive results could simply be false positives.

That issue faded into the background, however, when testing in New York indicated a positive rate in the order of 20 per cent of the population – a level comfortably above the likely test specificity, and one that should only come about due to “true” positives. While the experience in New York has been undeniably awful, it is certainly good news that a significant percentage of the population has recovered and hopefully now carries a level of immunity against reinfection. The future now looks considerably brighter for New Yorkers.

Other pieces of positive news to emerge recently relate to the prospects for improved treatment, and ultimately vaccination. On the treatment front, reports have emerged that US clinical trials of Gilead’s Remdesivir have shown it has the ability to accelerate recovery in patients. While the trial apparently did not demonstrate a reduced fatality rate with statistical significance, this may reflect insufficient statistical power (in simple terms, not enough deaths occurring in the trial and control groups to allow a clear conclusion to be drawn) as much as a lack of efficacy for the treatment. At this stage the full results of the trial have not been released, but the early commentary from Anthony Fauci, director of the US National Institute of Allergy and Infectious Diseases certainly seems encouraging.

On the vaccine front, researchers at the University of Oxford have indicated that a vaccine could be available as early as September, with animal trials of the University’s vaccine candidate proving successful, and manufacturers already moving to set up production in anticipation of positive human trial results.

It needs to be kept in mind that these promising developments could turn to disappointment as more information becomes available.  However, it also needs to be kept in mind that there are vast resources being devoted to many other streams of work aimed at improving our ability to manage and treat COVID-19. While some of these will inevitably fail, it seems reasonable to expect that some of them will take us forward in large steps.

It does not take much imagination to see a healthy recovery in the hardest-hit industries like tourism and travel once our ability to deal with COVID-19 renders it no more fearsome than a bad seasonal influenza.


Tim joined Montgomery in July 2012 and is a senior member of the investment team. Prior to this, Tim was an Executive Director in the corporate advisory division of Gresham Partners, where he worked for 17 years. Tim focuses on quant investing and market-neutral strategies.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. peter bryan

    A very intelligent article on This complicated subject.
    Thanks Roger

    To quote Trump:
    I’m not a doctor!

  2. “If a larger-than-expected percentage of a community has already been infected and developed antibodies, the challenge of achieving herd immunity starts to look correspondingly easier.”

    My understanding of ‘herd immunity’ – I am happy to be corrected here – is that it comes about through mass vaccination, that is about a 95% of the population being continuously vaccinated and monitored causes ‘herd immunity’. The concept -as far as I know – in a scientific sense does not apply to acquired immunity within a population through infection. If scientists understand the epidemiology of a virus and have a working vaccine that is effective, know the correct periods of re-vaccination, then herd immunity can be acquired if a viable program of vaccination is implemented. Otherwise infections will keep moving through the population – presumably they will slow down as immunity within a population increases (though even that is not a given) and flare up every now again – this is a big problem is the virus is harmful already or mutates in that direction. If there are examples of viruses where ‘herd immunity’ has been acquired without vaccines I would genuinely be interested to know what they are?

    • Hi John. I note that the definition of herd immunity varies a bit from source to source, but I think the popular usage today includes immunity acquired by either vaccination or infection. Happy to re-word though if a better term is available.

      Cheers, Tim.

      • Yep Tim, I realize in popular media ‘herd immunity’ is being used in a non-vaccination manner but I think this confuses and oversimplifies the issue in ways that generate dangers. This was especially the case in the early stages in Britain when they were talking about going for ‘herd immunity’ through allowing spread with low risk populations – if they had of been smart they would have gone hard fighting the spread very early on but alas this is history now.

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