As the world has just begun to recover from the initial coronavirus strain, and the impacts of the Delta variant, yet another variant of COVID has been discovered.
On November 26th, the World Health Organisation (WHO) named the new variant Omicron, and designated it a variant of concern, due to evidence that showed it had several mutations that may have an impact on how it behaves — for example, how easily it spreads or the severity of illness it causes.
In the UK, this has spurred the government to increase their efforts with regards to the booster jab program. Across Europe, mandatory vaccinations are being considered in an effort to combat the Omicron variant.
But what impact has this new virus variant had on the financial markets, and what reaction has there been amongst investors?
Read on to find out more.
The new variant
The Omicron was first spotted by a South African doctor, and researchers in South Africa (and globally) are conducting continuous studies to fully understand the new variant.
Although there has been in a rise in those testing positive in the areas of South Africa affected by Omicron, it is unclear whether it’s more transmissible than other variants of the virus. It is also uncertain whether an infection with Omicron causes more severe symptoms.
However, epidemiologists and immunologists are concerned that the mutations within this
variant could resist the vaccines already administered. This poses the question as to whether the public’s immunity offers enough protection.
Alongside the risks that Omicron poses to global health and the pressure on the healthcare service across the world, it can also have a significant impact on the health of the economy, and thus the relevant financial markets.
The impact on the stock market and indices
Stock markets across the globe have been heavily impacted by the discovery of the new variant, and the concerns and uncertainty it has caused. The financial markets have been rattled, and continue to fluctuate as more news on the variant is released.
At the time of writing, the major indices including the UK’s FTSE 100, the German DAX and the French CAC 40, all initially dropped by 1.5% before picking back up again. This was the biggest drop the FTSE 100 has experienced in over year. In the US, the S&P 500 fell by 2.2% — the steepest drop it has seen in the past nine months. Meanwhile, the DOW Jones index fell by 1.9%.
There was a slight rebound after these significant declines, but these indices have not bounced back to levels that were seen before the new variant was discovered.
When focusing on particular stocks, it is of course worth noting the impact on the companies that are manufacturing the vaccines. Initially, the market reaction was pessimistic, but with discussion surrounding the development of a booster shot that could fight the Omicron strain, Moderna (MRNA) stock saw an increase of nearly 11.8%, at the end of November.
It’s believed that investors are looking to stocks of vaccine manufacturers, as part of a long-term strategy. Based on previous market data, and the fact that Moderna saw a 6,000% rise in revenue for Q2 2021, traders may be speculating that history will repeat itself when a new vaccine formula is developed.
Turning towards ‘safer’ assets
With the volatility that the stock market is experiencing as a result of the Omicron variant, it seems that investors are turning elsewhere to more stable and reliable trades. There was a sharp increase in the likes of gold, German government bonds and the Japanese yen — seen as safe options during this time of uncertainty.
It seems investors are diversifying their portfolio to balance the uncertainly the new variant brings to certain markets, and the impact it may have on the economy. This includes ‘safe haven’ assets and financial derivatives.
For example, if you were forex trading on Plus500, you can speculate on the price movement on the Japanese yen through contracts for difference (CFD) and the impact of this market sentiment on the forex market.
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As with any unprecedented event, such as the discovery of a new variant, it is vital to keep
up to date with the relevant data and news, to ensure that you are acting accordingly and making well-informed trading decisions.
