COVID-19 Pandemic

Explained: How omicron is affecting financial markets

Published : December 03, 2021 16:18 IST

The omicron variant has caused turmoil in global markets. Photo: Pavlo Gonchar/Zumapress/picture alliance

The rise of the new COVID variant has rattled global investors who are struggling to judge its economic implications.

The emergence of omicron has kept global markets on tenterhooks, struggling to process the little, often contradictory information on the new COVID-19 variant. But analysts at U.S. investment bank JP Morgan say it won't be a bad idea for investors to take advantage of November 26's sharp fall in share prices, one of the biggest selloffs of the year, and "buy the dip." They argue that the "more transmissible" but "less deadly" omicron variant might eventually end up accelerating the end of the pandemic.

"While it is likely that omicron is more transmissible, early reports suggest it may also be less deadly — which would fit into the pattern of virus evolution observed historically," JP Morgan strategists Marko Kolanovic and Bram Kaplan wrote in a note to clients on November 1. "If a less severe and more transmissible virus quickly crowds out more severe variants, could the Omicron variant be a catalyst to transform a deadly pandemic into something more similar to seasonal flu," they asked, adding that, then, the omicron variant could ultimately prove to be a positive for markets, in the sense that "it could accelerate the end of the pandemic."

Kolanovic, who is the chief global markets strategist at the U.S. investment bank, and Kaplan say such a development would be in line with historical patterns of previous respiratory virus pandemics, given the broad availability of vaccines and new treatments that are expected to work on all known variants.

Markets in a 'waiting game'

Global markets have been seesawing for the past four days as investors struggle to judge the economic implications of the new variant, which was first reported in Africa last week. Omicron's emergence led to a major crash in the global stock and oil markets on November 26. The markets regained some of the lost ground on November 29 only to fall again on November 30 after vaccine maker Moderna's chief executive warned that the omicron variant could dodge existing COVID vaccines. Markets were further spooked by governments swiftly imposing travel restrictions to keep the new variant at bay.

"We're still in a waiting game for some concrete stats, but there was positive news early on from the World Health Organization's chief scientist, who said that they think vaccines 'will still protect against severe disease as they have against the other variants," Deutsche Bank strategist Jim Reid said. "On the other hand, there was further negative news out of South Africa, as the country reported 8,561 infections over the previous day, with a positivity rate of 16.5 per cent... So, all eyes will be on whether this trend continues, and also on what that means for hospitalization and death rates over the days ahead."

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