No need to overreact despite concerns over Omicron December 16, 2021

No need to overreact despite concerns over Omicron

The emergence of the Omicron variant of the COVID-19 virus has caused individuals, nations and investors to react with fear and concern. The variant was first reported to the World Health Organisation (WHO) on 24 November, with the first confirmed specimens found on 8 November in South Africa, and on 9 November in neighboring Botswana. As of 7 December, there were cases of the Omicron variant in 52 countries across the world.

Omicron was designated by the WHO as a “variant of concern” on 26 November, due in large part to the fact that the variant, otherwise known as B.1.1.529, has 32 mutations in its spike protein. This means that the Omicron variant has almost double the number of mutations as the Delta variant, which is the current dominant strain of COVID-19 in the world.

Spike protein mutations are of concern as it is the protein which allows the virus to attach itself to and to infect human cells. Hence, a large number of mutations in the spike protein could mean that the Omicron strain has an increased ability to infect. There are also concerns that these mutations may affect the ability of diagnostic tests to detect the variant, and may also reduce the effectiveness of vaccines being used currently.

Increase in market volatility due to COVID-19 resurgence fears

Stock markets across the world reacted badly to the news of the Omicron variant. On 26 November, the day Omicron was designated as a “variant of concern” by the WHO, the Dow Jones Industrial Average fell by 905.04 points, or 2.53%; the S&P 500 index lost 2.27%; while the Nasdaq Composite lost 2.23%.

In Asia, the Hang Seng index fell by 2.67% while the Nikkei 225 index in Japan lost 2.53% and Singapore’s Straits Times Index declined by 1.72%.

There are concerns that the Omicron variant may slow the process of lifting restrictions and reopening economies, thereby affecting economic expansion.

However, early data coming out from South Africa suggest that while the Omicron variant may be more transmissible, most patients experience only mild symptoms and hospitalized cases do not require oxygen support.

The US White House’s Chief Medical Adviser, Dr Anthony Fauci, also said on 5 December that the early data about the variant is “a bit encouraging”, but added that more information is necessary for a clearer picture on the effects of the variant.

Investors have responded positively to the release of the data, with the Dow rising 647 points on 6 December and 492 points on 7 December; the S&P 500 index gaining 1.1% on Monday and 2.07% on Tuesday; and the Nasdaq Composite Index ending Monday 0.9% higher, before rising 3% on Tuesday.

In Asia, the Hang Seng index was up 2.72%, while the Nikkei 225 was up 1.89%. The Straits Times Index in Singapore was up 0.59%, or 18.34 points.

Investors should continue to pay close attention to travel stocks as the Omicron situation develops and more research is being done on the effects of the variant.

While the stocks of cruise operators like Carnival Corporation (NYSE:CCL), Royal Caribbean (NYSE:RCL) and airlines like United Airlines (NASDAQ:UAL) were badly hit when news of the variant first emerged, falling by 11%, 13.2% and 9% respectively on 26 November, they have since recovered, with all three counters rising by more than 8% on 6 December. However, if there are any adverse news reports with regard to the severity of the Omicron variant, these stocks may once again come under pressure.

Another sector that investors should look at is vaccine producers — Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA) and Novavax (NASDAQ:MVAX) amongst others.

All three firms have announced that they are either in the midst of developing vaccines tailored for the Omicron variant, or in the case of Pfizer, it said that it can modify the original vaccine to ensure it is suitable to tackle the Omicron variant, and that it can be ready “within 100 days”.

Analysts have forecast Pfizer’s revenue to top USD100 billion next year, and this is due in large part to sales of its vaccine and its COVID-19 antiviral treatment pill. It is expected that orders for COVID-19 vaccines will continue to remain at healthy levels as we move into 2022.

Lack of consensus from the scientific community

However, it is important to note that there is little or no scientific consensus at the moment on the severity and transmissibility of Omicron, in relation to other variants such as Delta, which is the current dominant strain.

While there are also concerns with regard to vaccine effectiveness, there is a concerted effort from researchers to establish if current vaccines are still effective against Omicron. There is also a focus on whether a booster shot, or a third dose would increase effectiveness.

Pfizer is conducting a study where they are retrieving antibodies from individuals who have had two or three doses of the Pfizer/BioNTech mRNA vaccine and determining the ability of the antibodies to resist and defeat Omicron.

While the world waits for more comprehensive and concrete scientific data from researchers, markets will continue to be volatile and be driven by either positive or adverse news developments.

Hence, it is crucial for investors to not overreact and to continue to keep a close eye on the latest developments and data.



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About the author

Ming Jie
Investment Specialist
Phillip Investor Centre (Holland Drive)

Ming Jie is an Investment Specialist at Phillip Investor Centre (Holland Drive) and specialises in providing investment advisory services to retail clients, with a focus on helping clients to build and manage unit trust portfolios that can help to achieve their investment objectives. He joined Phillip Securities in 2017 and graduated from University of London with an external honours degree in Economics and Finance.

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