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3 Stocks That Could Rally in a Post-Covid-19 Recovery

China’s capital is bracing for a potential second wave of Covid-19. After 56 straight days of no locally transmitted cases, a new outbreak has emerged.

According to Xinhua, Beijing has confirmed 227 domestically transmitted cases from 11-20 June. While it looks pretty bad, it is always darkest before dawn.

The UK recently approved dexamethasone for the treatment of Covid-19. The drug has shown to reduce deaths by up to 33% in severe Covid-19 cases.

Vaccines are also coming potentially by the beginning of next year and maybe even sooner. Many companies around the world have worked on the urgent problem of developing a vaccine, and among them, several companies have especially promising candidates.

Goldman Sachs estimates Moderna’s vaccine candidate has a 75% chance of success. Morgan Stanley estimates CanSino Biologics(SEHK: 6185) vaccine has a 60% chance of success. A vaccine candidate developed by Oxford University is pretty promising as well.

With the upcoming vaccines moving closer to the finish line, things could begin returning closer to normal and many stocks could benefit.

Expectation improvement

The market is all about expectations. When events occur that improve expectations, stocks often go up. Even the expectation of an event that could improve expectations could lift stocks.

As we get closer to a successful vaccine developed, some companies could see a meaningful increase in bullish sentiment.

These three companies – Link REIT (SEHK: 823) HSBC Holdings plc (SEHK: 5), and Standard Chartered PLC (SEHK: 2888) – could see their share prices benefit.

Link REIT

Link REIT is a great stock. The company has increased its dividend consecutively for many years. It also has a strong balance sheet.

Link REIT’s stock fell a lot in 2020 due to Covid-19 causing tourist arrivals to Hong Kong to decline sharply. Once a successful vaccine is developed, however, the market will anticipate more tourist arrivals and Link REIT’s stock could potentially rebound.

HSBC

HSBC will benefit from the development of a Covid-19 vaccine. If a vaccine is developed, expectations of an eventual HSBC dividend reinstatement will increase. If HSBC pays a dividend again, many inventors could buy the stock once more.

HSBC will also benefit economically. A stronger economy will help the bank’s loan growth and loan quality. Its charge-offs could also decrease as non-performing loans decrease.

Given that HSBC’s long-term performance hasn’t been that great, it isn’t necessarily as great of a buy-and-hold stock as Link REIT.

It might be more of riskier medium-term play until management shows that it can execute, in which case it could be a good long-term play.

Standard Chartered

Standard Chartered is another bank stock that has fallen a lot due to Covid-19. Since the beginning of the year, Standard Chartered shares have fallen around 43%.

Factors that weighed on its share price included a dividend suspension, declining interest rates, and increasing charge-offs.

If a vaccine is developed, the market will believe a dividend reinstatement is more likely and the stock could potentially rise.

Like HSBC, Standard Chartered might also not be a great “buy-and-hold” investment until management can show they execute. If a successful vaccine isn’t developed, any expectation-led rally could fail.

Foolish conclusion

Due to Covid-19’s economic destructiveness, the development of a successful vaccine for the coronavirus (or even the expectation of the development of a successful vaccine) will improve sentiment.

Stocks such as Link REIT, HSBC, and Standard Chartered could all benefit from the improved sentiment and potentially higher expectations.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Jay Yao doesn’t own shares in any companies mentioned.