Possible Impact of Omicron on International Investments and Stock Market
We all spend the pandemic period differently, but even if we all find something different to do, we experience the same thing in terms of the impact of the pandemic on the investment and stock markets: COVID-19 has caused many economic problems around the world.
The panic-stricken Omicron variant, which has emerged recently, could cause this situation to happen again: pessimistic scenarios expect worse results than the first pandemic. But there are also scenarios that claim that things won’t turn out that bad. So, which of these is more likely to happen? How might the Omicron variant affect the investment and stock markets? We will try to find answers to these questions by explaining different scenarios.
This approach claims that the Omicron variant will not be as bad as it seems. We witnessed the first Covid 19 effect in the markets in the period of February 2020 – March 2020. Stock indices depreciated by 35-40 percent in 5 weeks but also rose at the same pace within a few weeks. It took three and a half months for the stock market indices to return to their initial values after this huge decline. Eight months later, in October 2020, with the Delta variant news and the acceleration of the epidemic, the stock markets again suffered a serious loss of value: in eight trading days, the indices lost an average of 14 percent value.
This time, however, the bounce back was much faster, and within 3.5 weeks the stock market indices were able to return to their initial values. In other words, neither the original outbreak nor the Delta variant caused permanent losses in prices. On the contrary, they created buying opportunities.
We can say that a similar situation will occur in the Omicron variant. However, we are not sure if the indices will return to the point they fell quickly: although this is highly likely, statements from vaccine manufacturers will determine how long the bounce back period will be.
If the existing vaccines are effective enough on the Omicron variant or if a statement is made about the new variant being non-lethal, the investment and stock markets will not be affected much. But if existing vaccines need to be adapted to the new variant (or if the new variant is more deadly than predicted), we can expect to see a negative effect. However, even in the worst-case scenario, the new variant is not expected to cause a significant change in 2022 projections, except for a few months’ delay.
The main expectation for 2022 was that global growth would regain momentum as of the second quarter and that the Covid 19 virus would cease to be an epidemic following the spring. Markets have not priced this scenario yet. That’s why this time the market value loss will be much more limited and will create an attractive buying opportunity in stock markets, especially in the travel and entertainment sector.
In this approach, it is predicted that everything that can go wrong will go wrong, and this time the pandemic will have a much more devastating effect. The Pan-European Stoxx 600 index dropped close to 4 percent on the last trading day of the week after the World Health Organization classified the new variant B.1.1.529 (Omicron) as a ‘variant of concern’. In addition, travel shares in the European stock markets and the oil and gas sector suffered heavy losses. Asia-Pacific markets plunged sharply overnight, while Hong Kong’s Hang Seng index and Japan’s Nikkei 225 index fell more than 2.5 percent. U.S. stock markets also fell sharply.
While the FTSE 100 index, which includes the leading stocks of England, closed with a decrease of 3.7%, the stock markets of Germany and France also fell. Leading stock indexes in both Germany and France fell more than 3% on Friday. The BIST 100 index, which lists some stocks traded in Istanbul, also closed the day at 1,776.41 points with a decrease of 2.35 percent.
The re-initiation of travel bans in many countries has put the tourism sector in a difficult position. People stay at home and participate in most activities remotely: receive distance education, attend meetings via Zoom, play games on sites such as https://vulkanvegas.com/ca/category/slots. In addition, concerns that travel demand may decrease also affected oil prices. Brent oil closed the last trading day of the week in Europe at $72.7, down 11 percent, while US oil fell more than 6 percent to $72.
If a closure happens, this will affect the service sector. Such a situation becomes a factor that deeply affects all sectors. In the period when exports increased so rapidly, the increasing uneasiness in the world brought along the re-pricing of all markets on a global scale. It is thought that this will have an impact on all sectors in the coming period. The Omicron scenario is actually similar to the situation when Covid 19 first emerged in 2019 and reminds us of the period when people were quarantined, and flights were cancelled. The market will now price this scenario much faster, for the same reason we will feel the devastating effects of Omicron much more quickly, and this chain reaction will cause serious problems in all industries.
We don’t know which of these scenarios will come true, but we hope the optimistic one will happen: the world cannot afford another quarantine, and this could have devastating effects, especially in developing countries.