Columnists

New round of risk aversion as latest Covid-19 strain emerges

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Coronavirus economic impact concept image. FILE PHOTO | NMG

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Summary

  • Certainly, there are points of concern both from a health standpoint and also investment-wise.
  • Although some see it as a buying opportunity, the markets are obviously bearish and could trigger a deep correction.
  • The fate of global markets depends at least in part on laboratories around the world probing the omicron Covid-19 strain.

No one saw it coming. Just when global economies were getting back to their full swing, a new Covid-19 variant dubbed Omicron is detected and appears to be spreading rapidly in several parts of the world.

So far, it has been detected in Botswana, Hong Kong, Israel and Belgium. And just by the snap of a finger, world markets are thrown in a spin. On Friday last week, the Dow fell 2.5 percent while the S&P 500 climbed down 2.3 percent following the announcement.

The Nairobi All-Share Index and Nairobi Securities Exchange 20 Share Index all declined by 2.2 percent and 0.4 percent, respectively.

Outside of equities, other asset classes also struggled. Brent crude, the global oil benchmark, dropped more than 10 percent to close the week at 73.66 dollars per barrel. Cryptocurrencies dropped across the board with Bitcoin falling more than eight percent dragging most smaller tokens down. Are these moves indicating that the new strain could once again derail the global markets?

Certainly, there are points of concern both from a health standpoint and also investment-wise. The World Health Organisation says preliminary evidence suggests there may be an 'increased risk of reinfection with Omicron' (ie, people who have previously had Covid-19 could become re-infected more easily with Omicron).

What’s more, the potential impact of this variant on existing countermeasures such as vaccines and testing remains unknown. The recent drop in asset prices could be the market’s way of saying it is unsure about a quick recovery under a long, dark Covid-19 cloud.

Although some see it as a buying opportunity, the markets are obviously bearish and could trigger a deep correction.

For some time, the pandemic and Covid variants will continue being one of the biggest risks to markets and are likely to continue to inject volatility over the next year and beyond.

In summary, the wild roller-coaster ride seen last Friday reflects the vast confusion and radical shifts sparked by an unprecedented crisis.

Now the fate of global markets depends at least in part on laboratories around the world probing the omicron Covid-19 strain.

Until then, there will be rounds of risk aversions that will hit markets, due to concerns over the new variant. As long as its full significance remains uncertain - as it might take weeks or months to assess the severity of the new variant - this fact is expected to wither investor appetite.

If the Omicron variant proves to be more resilient and deadly than other variants, and evidence builds that it has spread across the world, then upside remains limited and world markets should brace for further losses.

Mr Mwanyasi, managing director at Canaan Capital