We see more vaccines coming this quarter and Topix to outperform NK225 in 2021

The coming oversupply of Covid vaccines 
As we noted in our last publication, we think that despite the new Covid variants of more contagious forms being detected globally, not only the vaccines approved thus far are said to be equally effective against these mutated viruses but we think the global surge in infections are only likely to quicken the pace of production and administration of these drugs in the current quarter. To be sure, early vaccination programs have not been too impressive as many countries, namely the US have drastically undershot their year-end vaccination targets. However, we think these are merely toothing glitches that will be undoubtedly ironed out by end of this month as developed countries adopt more efficient and organised methods to administer the drugs.

Moreover, with the cheaper and easier to store AstraZeneca Covid vaccine having been finally approved in the UK as we had expected and likely to be one of the first to be distributed to poorer nations, not to mention, China’s Sinopharm drug also bound for some third-world countries, also reporting a high 79% efficacy ratio, we continue to think that mass immunisations will be reached at much faster pace than what the market is currently fearing. As we noted in our November 22nd publication which readers can access here: {https://asymmetric-advisors.com/despite-positive-vaccine-related-undertone-trumps-tantrums-remain-a-short-term-risk/}, we see many more vaccines that are already in advanced mass production stage, likely to report their last hurdle trial results very soon and if effective, likely to be approved within this month. We, thus, see many more Covid-related jabs to be made available globally which we think will spell the end of the pandemic by this summer. 

Topix should outperform the Nikkei in 2021 
As we pointed out in our last weekly publication of last year, we think the Japanese stock market will remain one of the best performing developed equity markets in the current quarter. Although the Topix index finished the year short of our ¥1900 target, managing to close just above its crucial ¥1800 resistance line, we have high hopes that its ascent will continue, led by cyclicals and other pandemic hit names which we believe will lead the recovery this year. Our target is for the broader index to hit ¥2000 by end of this quarter which would be the highest level since April 1991. 

More interestingly, in terms of looking for long/short ideas, we believe that this broader, market-weighted first section index could finally start to outperform the Nikkei 225, having massively under-performed it for years, partly because of huge Nikkei-linked ETF purchases by the BOJ, and concerns about the US/China trade war which since 2018 started weighing on shares of more cyclical firms not present in the Nikkei. With the Nikkei/Topix (NT) ratio having reached another all-time-high record of plus 15, also due to strong out-performance of larger cap technology-related names, generally better represented in the NK225 index, we are looking for a potential reversal of this long-term trend which first began when the ratio bottomed at 9.4 level in late 2005. 

Although by the end of 2019 we had expected this trend reversal to start forming sometime last year as BOJ had already shifted its equity ETF purchases towards Topix names, we feel that the pandemic has over-extended the NT ratio to even more unsustainable levels. This scenario is not only consistent with our bullish outlook for many cyclical names with far more modest valuations but also our growing concerns about valuations of many larger technology stocks which by and large, have seen a huge rerating last year as they have financially benefited from stay-at-home and work-from-home regimes during this pandemic.