Three quick points on the investment implications of the emergence of the new virus variant.
Elliot Hentov talks about the potential implications of Omicron’s emergence. Video (1:58)
The virus is back, or is it really?
It's been months since investors thought about COVID as a market driver, but the arrival of the Omicron variant does raise several questions. I'll make three quick points here.
The first is uncertainty. Uncertainty usually parallels volatility, and we should still continue to see more of that in the coming days and weeks as a variety of medical data comes to light. Some of it will be from labs, some of it from the real world. But a lot of it has the potential to push markets in different directions.
Given the sensitivity of the topic, the second point is risk. All in all, risks are clearly to the downside. Why? Well, in the best-case scenario, nothing changes. Omicron just, you know, the vaccine wall holds steady. It performs, and you basically have a continued, slow climb out of the pandemic, but the worst-case scenarios could be quite worse. It could lead to some regions of the world reimposing restrictions and curtailing economic activity, and therefore exacerbating the pandemic stress on the global economy.
And that leads me to point 3, which is policy support. It would certainly be weaker. We could not expect the same fiscal easing we had in the last 20 months, but more importantly, central bankers are fighting an enemy today named inflation and given inflationary levels where they are, monetary policy would certainly not be as supportive. And therefore Omicron needs to still be taken seriously. Even if initial signs are promising that the vaccines will hold.
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