Yahoo Finance ‘This is serious’: Markets on alert as Omicron variant spreads
The new Omicron COVID-19 mutation sent shockwaves through global markets on Friday and Monday, after experts named it a “variant of concern” with cases now being recorded around the world.
Wall Street suffered a day in the red on Friday, with the Dow Jones slumping 2.53 per cent and the S&P 500 sliding 2.27 per cent. Locally, the ASX200 was down 0.18 per cent at time of publication, while the broader All Ordinaries had slid 0.17 per cent.
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And as international borders begin to shut again, policymakers, healthcare professionals and investors are waiting on key results from Pfizer and BioNTech on whether the current vaccines work against Omicron, while also monitoring the hospitalisation and fatality rates for the latest variant.
“It really hangs on two questions,” Montgomery Investment Management chief investment officer Roger Montgomery told Yahoo Finance.
“Number one, is this variant more deadly? We know it’s more transmissible … if it is more deadly, that is a worry. Then the question that emerges from that is, do the current vaccines or newly developed vaccines work to prevent severe illness or death?
“If there’s good news on those two questions, the market will go back to talking about inflation risk. But if they’re answered poorly, the markets are going to take a big setback.”
Montgomery said he was currently monitoring all sectors, but in particular the travel sector, for shocks.
“We’re specifically interested in the COVID variant out now, because if travel stocks are hit hard but the news is ultimately good, then they’ll bounce equally quickly so there’ll be a huge opportunity,” he said.
“All of those reopening stocks that are being hit now are the ones that will bounce again if it emerges that the vaccines deal with this variant really well, or it’s not more deadly [than the other variants].”
Qantas was down 1.50 per cent at 12:40pm AEDT on Monday, while Flight Centre was down 2.16 per cent.
Oil jitters a warning sign
Oil prices also fell on Friday before recovering some losses on Monday, Wealthi co-founder Peter Esho also noted, flagging this as a sign global travel could hit the brakes by Christmas.
“So, this is serious and I don’t think we can ignore it,” Esho said.
“Most of the developed world is looking towards ‘life after COVID’, but the recent Omicron outbreak raises vulnerabilities.
“Best-case scenario, the threat wanes and is contained, there will still be hesitancy though that another deadly strain could emerge.
“Worst-case scenario is this brings us back into another, globally coordinated lockdown phase, particularly in the Northern Hemisphere.”
But while lockdowns are bad for hospitality and travel, they can be good news for technology names and other consumer stocks.
The question is how much lockdown fatigue will temper the silver lining, Esho added.
“The big takeaway is this - we’ve been expecting things to get better - light at the end of the tunnel - but Omicron dents this expectation severely,” he said.
“Even if it’s nothing, authorities will be worried about another variant emerging. So, we’re going into 2022 with more uncertainty and more caution.”
Montgomery is more optimistic, and believes that, regardless of Omicron, Australia is heading into the new year in a good position.
“Employment is going to be very low and, in the absence of the Omicron issue, immigration is going to return,” he said.
“They will alleviate pressure on wages and wage pressure that is inferred on consumer prices and then we end up with growth, low inflation, low interest rates and that is the goldilocks environment for innovative growth stocks.”
But there’s a big lesson to be learned from this, Montgomery added, and it’s one that epidemiologists have been sharing since COVID-19 was first declared a pandemic in March 2020.
Without ensuring equal access to vaccines around the world, the virus will continue to mutate in developing countries and pose risks to those nations and the broader international community.
In Botswana, South Africa and Lesotho, where the latest mutation is spreading, between 26 per cent and 36 per cent of people are fully vaccinated. And in Africa more broadly, just over 10 per cent of the population can be considered fully vaccinated.
“It’s really imperative that wealthy nations work collaboratively to vaccinate the third world,” Montgomery said.
“It’s not just altruism, it’s not just about being nice to your neighbour. It’s about our own survival too.”
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