Omicorn Impact – Markets Evaluating Risk

Indian Indices closed in green on Monday and rection in the global market are mixed unlike the Friday pessimism. Discovery of Omicron triggered the alarm globally and has resulted in a wide spread sell off in the market on Friday.  Dow Jones Industrial Average fell around 1000 points on Friday on 26th November. S&P 500 fell more than 100 points i.e by 2.27% to close at 4594.62.  Russell 3000 Index fell by 2.31% to close at 2709. 73

European Commission has proposed member countries to ban travel from southern African as well as other impacted countries to contain the spread of virus.  According to the press statement by President Von der Leyen EU is concerned about the new variant as it has the potential to spread globally within a matter of few months. European Union has contract with the manufacturers that vaccine has to be adapted immediately according to the requirement of new variant as and when they emerge. Britain, European Union, Canada, Russia, United States, Australia, Brazil, Japan have imposed travel restrictions.

 

The World Health Organisation (WHO) has advised countries for enhancing surveillance and sequencing efforts for understanding the virus, reporting genome sequences to the WHO notified database, reporting cases and clusters and conducting detailed investigation for understanding the impact of virus on effectiveness of public health and other related aspects. Variant was first identified in South Africa and reported on 24 November 2021 to WHO.  South Africa has seen three distinct peaks of epidemiological situation, latest being the Delta variant. Omicron has large numbers of mutation out of which some of the mutations are concerning as they carry an increased risk of infection. All the province of South Africa are seeing surge in cases.

Vaccine maker Moderna in its press release has said that the Omicron may be immune to the current variant and company is actively working to test the impact of vaccine on new virus.  According to PTI, All India Institute of Medical Sciences (AIIMS) chief Dr Randeep Guleria have highlighted the need for aggressive surveillance of international travellers and has warned for critical evaluation of efficacy of the Vaccine on the new variant.  

Earlier, The International Monetary Fund (IMF) has revised its projection downward by 0.1 % for global economic growth, to 5.9% for 2021. For 2022, the forecast was 4.9%, which will further moderate to approx. 3.3% (beyond 2022), over the medium term (beyond 2022).

Global Supply chain are still in the recovery phase. The impact of Omicorn remains to be seen as the scientist are testing the efficacy of the vaccine on the new variant. Investors are indecisive due to lack of clear data points. The worst scenario for the market would be combinations of factors leading to increase in uncertainties. One such scenario could be where the virus is transmissible, is more deadly and have resistance for existing vaccine. This situation will result in more stringent lockdowns and closure of businesses. The World economy will take a hit from reduced economic activities and re-disruption of supply chain. Governments are already stretched on the fiscal stimulus side and will be difficult to meet up the new need. Money will be moving from priced to perfection stocks to stocks which still have a room for valuation. IT, Pharma, FMCG will be remain the choice stocks for investors during uncertainty including stocks in the disinvestment category.  However, its time not to raise the false alarm as clear data points are yet to emerge. Governments globally have learned from their experience in arresting the issue and taking adequate steps for mitigating the challenges.

Bureau Galactik Views