Brazil’s Covid-19 crisis is worsening and could spill over its borders, threatening progress in bringing the global pandemic under control and potentially derailing a recovery in international travel.
Covid cases are surging in Brazil as a new strain of the virus spreads from the interior to urban areas and populous states. The trends are worrisome since the new strain, known as P1, may be far more infectious and causing re-infections of people who previously had the virus. According to a study from Imperial College London, P1 may be 1.4 to 2.2 times more transmissible than prior strains, and it may evade 25% to 61% of the protective immunity in people who had the baseline virus.
“What is so problematic about P1 is reinfection—people catching Covid for a second time,” Raymond James’ equity-research team wrote in a note on Thursday.
Some preliminary studies indicate that P1 mortality rates are 10% to 80% above the baseline for Covid-19. According to Raymond James, that may explain why case counts in Brazil are back to peaks seen in 2020, but hospitalizations and deaths are setting new records, with deaths rising to more than 2,200 a day.
São Paulo, Brazil’s largest and most economically powerful state, went into a full lockdown on March 6.
Vaccines can’t be distributed fast enough, but the rollout is going slowly in Brazil, where the government of President
has been sharply criticized for its handling of the pandemic.
Brazil’s Ministry of Health has said that domestic vaccine production would be enough for 100% of priority groups and about half the total population by July, but that doesn’t mean swaths of the population will be vaccinated by then, according to Raymond James. “The nature of Brazil’s federalism would make it difficult for the national government to enforce a truly comprehensive strategy, even if there was a desire to do so,” the firm’s analysts wrote.
The implications go beyond Brazil. Health experts worry that the P1 strain could rapidly spread through Latin America, slowing down vaccine progress, and could become one of several more contagious strains in North America and other regions. Some preliminary studies indicate that vaccines produced by
(Ticker: PFE) and
(AZN), are effective against the Brazilian strain. But it will be a race against time for vaccinations to outpace the spread of the Brazilian variant and others.
Brazilian airlines have sold off as the pandemic in the country worsened. The American depositary receipts of
Gol Linhas Aereas Inteligentes
(GOL) are down 19% this year. ADRs of
(AZUL) are off 6%.
U.S. airlines, by contrast, are up an average 33.6%, according to returns for the
NYSE Arca Airline
The Brazilian carriers are also being hit by a depreciation in the value of the Brazilian real against the dollar.
Some analysts are recommending shares of both Gol and Azul at these levels, though they caution that the stocks could weaken in the near term. “We wouldn’t be surprised to see both stocks pull back another 10%-15% on near-term macro volatility,” Seaport Global analyst Daniel McKenzie wrote in a note this week. “No need to race into the names,” he added, but he recommended averaging into the stocks over the next few months with an “eye to compelling 1-2 year returns for those that can stomach the volatility.”
also weighed in on Gol on Thursday, writing that investors should “just be patient with near-term turbulence.” The positives for the carrier include a return of the
(BA) 737 Max plane, a sound balance sheet, and operating-cost improvements. Gol could also benefit from taking full ownership of its Smiles mileage program, with a Smiles shareholder vote on the deal scheduled for March 15.
Still, Trent slashed his price target on Gol’s ADRs from $16 to $11. That would still imply a return of 38% from the stock’s recent prices around $8. But the lower target reflects the fact that Brazil’s Covid crisis is likely to get worse before improving over the summer. It’s also a sign that other airline price targets could quickly come down if pandemic trends don’t improve as expected.
Write to Daren Fonda at [email protected]