JPMorgan, Morgan Stanley and Credit Suisse among firms that view Omicron as a speed bump to recovery in markets that will also present opportunities

JPMorgan, Morgan Stanley and Credit Suisse among firms that view Omicron as a speed bump to recovery in markets that will also present opportunities

The discovery of Omicron, the new Covid-19 strain, has brought a fresh wave of volatility to Asian markets, which have reacted with alarm to the WHO declaring it a “variant of concern”.

The markets took their cues from the United States, where markets saw heavy sell-offs on Friday. The Dow and S&P500 tumbled to their biggest drops in months.

As investors fret over whether markets will take another beating from new Covid-19 variants, here are what global banks and fund managers have to say about the Omicron strain’s impact.

JPMorgan: a bump in the road to recovery

“Investors for some months have been pricing in a smooth path to recovery and the Omicron variant poses a new challenge to this constructive view,” said Tai Hui, JPMorgan Asset Management’s Asia chief market strategist. Market pressure could persist until medical experts have a better understanding of the virus, he added.

Sectors that outperformed during the early stages of the pandemic, such as technology services and health care, have attracted investor interest again, compared with cyclical sectors that could once again come under pressure, Tai said. Meanwhile, a short-term rotation from risk assets including equities to safe-haven assets, such as government bonds, could continue, he added.

“The most likely scenario is a bump in the road to recovery, rather than derailing it,” Tai said, considering governments’ experience in dealing with outbreaks and scientists’ ability to alter current vaccines.

“This would imply potential opportunities for long-term investors to re-load on risk assets, but this would require greater clarification on the impact from the Omicron variant.”

Invesco: any continued sell-offs are buying opportunities

“[The Omicron discovery] does not mean we are going back to the dark days of 2020,” said Invesco’s global market strategist team. “Pharmaceutical companies have expressed confidence that they can re-engineer their vaccines to protect against it,” it said.

“Investors may maintain current allocations and view any continued sell-off as a buying opportunity,” the global investment management firm said on Monday.

The most vulnerable sectors were travel and leisure, basic resources and general retail. Assets that would suffer the most were industrial commodities, equities and real estate. “Though markets are unlikely to fall as much as in early 2020, the recent strong gains in cyclical assets suggest scope for a potential correction,” Invesco said.

Credit Suisse: an opportunity in selective and specific areas

Market volatility was likely to persist until more facts about the new Covid-19 variant were known, said Michael Strobaek, Credit Suisse’s global chief investment officer. The Switzerland-based investment bank kept equities at a small overweight position and government bonds as underweight.

“Risk assets such as equities are likely to give back some strength, but it is an opportunity in selective and specific areas such as endemic Covid logistics,” said Strobaek. He added that he expected pharmaceuticals to be resilient as they were more defensive in nature.

“Financial markets will be inevitably affected by bouts of volatility into 2022,” he said. “When these events bring yields down, it is an opportunity to reduce high-grade bond exposure and duration exposure. When they affect risk assets and raise the equity risk premium, it is an opportunity to take exposure to selected equities,” he added.

Morgan Stanley: delays in reopening efforts

The new Covid-19 variant poses a “near-time risk” to Morgan Stanley’s outlook on Asia going into 2022.

“However, with a much higher share of vaccinated population, the downside risk to growth could be less than what transpired in mid-2021, when the Delta variant emerged, provided that the Omicron variant is not more challenging,” a research team led by Chetan Ahya, Morgan Stanley’s chief Asia economist, said in a report published on Sunday.

Further delays to borders reopening could be expected, the report said. “[Mainland China, Hong Kong and Taiwan] have largely maintained a Covid-zero strategy, which will limit the near-term economic impact. But this means any reopening efforts will likely be pushed out further, delaying a stronger rebound in consumption growth,” it added.

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