A trader works in a booth on the trading floor of the New York Stock Exchange (NYSE), Nov. 8, 2021.
Brendan McDermid | Reuters
LONDON – Stock markets may well be after the advent of the omicron Covid-19 variant, but strategists and economists warn investors against hasty action.
Global stocks heavily sold out on Friday when news about the variant and its possibly relevant mutation profile was disseminated. US and European stocks made up some losses on Monday, but futures fell on Tuesday on fears about the Effectiveness of vaccines in the Omicron variant.
That’s what health officials said it can take several weeks to understand whether the new strain can bypass existing vaccines and antibodies and how severely it affects those infected.
In the meantime, however, many countries have imposed new travel restrictions, and strategists suggested on Monday that the market would stay tuned for the short term to ongoing research into the variant, creating volatility.
But while Friday marked the worst setback in equity markets of 2021, strategists and economists still see no reason for a sustained decline and generally advised clients to focus on the long-term fundamentals of the recovery.
In a statement on Tuesday, Jean Boivin, head of the BlackRock Investment Institute, said: “We are staying invested for now as a new strain of virus and Europe’s surge in COVID affect risk sentiment. Any delay in the powerful restart now means more later. “
Boivin acknowledged that a new, highly contagious strain of Covid could hurt growth, worsen risk sentiment and have “significant sectoral implications”.
“We are concerned about the number of people and expect further restrictions on activity. We currently prefer stocks, but would change our stance if vaccines or treatments prove useless, ”he added. “If they are effective, the strain will only delay economic recovery, and we would oppose any setbacks in the equity markets. Less growth means more now.”
Finance, healthcare, energy
Mark Haefele, Chief Investment Officer for Global Wealth Management UBS, said in a statement on Monday that omicron is unlikely to warrant a change in belief that the global economy is on a bumpy recovery path and that growth will be robust.
“We advise against making hasty changes to investment strategy and we recommend staying invested. The market reaction may have been exacerbated by the relatively low liquidity in Thanksgiving week and volatility could remain elevated in the coming days as systematic investors readjust their positioning “said Haefele.
“A period of market volatility after such a strong rally shouldn’t come as a big surprise either. But it does remind us of the importance of being diversified across markets and sectors.”
On a sector basis, Haefele rates financial and energy stocks as positive. He expects oil prices to remain elevated through 2021 and 2022, using an international benchmark Brent crude oil March up to $ 90 a barrel.
“Finances were hurt by falling yields on Friday, but after the strong 3rd [third-quarter] Sector earnings rose during the reporting season and the latest data from the European Central Bank suggest spike in credit growth in the private sector, “added Haefele.
Haefele also recommended that investors look for opportunities in healthcare stocks, which he believes offer “both defensive and growth opportunities”. He said the strategic outlook for the sector remains strong and valuations are attractive after the recent losses.
“From our point of view, it is long overdue to catch up. We think this is more likely as the uncertainty is around US drug prices are clear“, Said Häfele.
UBS has increased exposure to alternatives such as private equity and hedge funds, which strategists believe are well positioned to generate risk-adjusted returns in falling markets. Haefele also recommended that investors look for “unconventional sources of return” like personal loans or dividend stocks.
Time to retreat?
George Lagarias, chief economist at Mazars in London, said in a statement Monday that while it was difficult to say whether Friday’s pullback was an overreaction, the evidence suggests investors should wait and see before moving on from one Speak correction.
“Global stocks were up almost 21% year over year and even if the event hadn’t happened, it would not have been the worst time for market participants to take profits off the table,” said Lagarias.
Given the abundant liquidity in the markets, he suggested that investors could try to take advantage of lower valuations and get their money back to work. That trend appeared to be evident in Europe and the US on Monday as the markets rose.
That sentiment was confirmed by Berenberg chief economist Holger Schmieding, who told investors on Monday that the rise in uncertainty explained Friday’s market reaction, but the long-term fundamentals of the recovery would be delayed rather than derailed.
Schmieding admitted that news flow could get worse before it gets better in the coming days, but said central banks’ approaches to monetary tightening are unlikely to change dramatically.
“As we have argued since mid-March 2020, the pandemic does not justify a dramatic and permanent reassessment of the value of the production capacity of large economies, expressed in terms of overall share prices,” said Schmieding.
“In short, we don’t see Omicron as a reason for a sustained bear market.”