O'Micron, the "last straw" that crushed global risky assets?
Source: Wall Street
On November 25th, South African scientists announced the discovery of a new variety of COVID-19 strain B.1.1529, which led to an exponential increase in the number of new COVID-19 cases in Gauteng Province, South Africa, far more contagious than Delta strain and stronger immune escape ability attracted global attention.
Just two days after scientists announced the discovery of the new virus, more than 90 per cent of new COVID-19 cases in South Africa were infected. Worldwide, people infected with new variants of the virus have been found in Israel, Belgium and Hong Kong, China.
The emergence of the new virus coincides with market expectations that the Fed will announce an acceleration of taper in December. Soochow Securities believes thatThis may greatly suppress the risk appetite of financial markets in the short term.
What is the market impact of the new virus?
The outbreak of the new strain in South Africa and its spread around the world triggered panic in markets, with major stock markets, government bond yields and commodities, especially crude oil, falling sharply. Soochow Securities believes thatUnder the accumulation of early negative factors, the news of the variation of the epidemic may be the "last straw" that overwhelms the global risk assets.
Soochow Securities pointed out thatThe fall in oil prices and 10-year US Treasury yields is the "standard match" of the outbreak.Under the addition of many negative factorsThe range of market adjustment this time is significantly greater than that of the outbreak of Delta virus.The emergence of new variants has cooled market expectations of Fed tightening.
As for the previously accumulated negative factors, Soochow Securities pointed out that they include the following points:
The growth momentum of the global economy has slowed significantly under high inflation and supply constraints. The shift in global monetary policy is beginning to accelerate, and the market expects that the Fed is likely to announce at its December meeting to accelerate the impact of the taper;Delta virus that some European countries have reactivated the blockade, and the scope of the blockade is further expanding. For crude oil, the selling signals and operations of economies such as the United States have brought additional negative pressure. At the trading level, near the end of the year, previously profitable investment positions will be more prone to profit-taking in the face of uncertainty.
For market participants, Soochow Securities pointed out that the next focus should be on the pathogenicity and vaccine resistance of the new variant Omicron.If these aspects are more serious than expected, the pace of the global economic recovery may be interrupted again, or it may reduce the urgency of Fed tightening.Hit expectations of "radical" market tightening since November.
Virus may aggravate stock market vulnerability
Long before the first outbreak in March 2020, a large number of bubbles had accumulated in the market. Today's situation is similar to that of then, with investors taking a bullish view in terms of solid economic data, strong corporate earnings and Fed easing.
But the stock market is likely to be more vulnerable today than it is in 2020. The emergence of the new virus O'Micron has led governments to tighten travel restrictions on people from South Africa and global stock markets have tumbled.
Uncertainty spread by O'Micron sent the S & P 500 down 2.3% on Friday.This is the biggest daily decline since February this year.The index has risen more than 20% since the start of the year. This is undoubtedly a "warning" for investors who have been bullish on the stock market.
Traders also bought protective options, pushing the Cboe volatility index to its biggest gain since January.
Investors transferred nearly $900 billion to US stock exchange traded funds (ETF) and bullish funds in 2021, more than in the past 19 years combined, according to Bank of America Corporation and EPFR Global.
Anna Stupnytska, a global macroeconomist at Fidelity International, said investors may be forced to reconsider their bullish views as the epidemic spreads and a new strain of the virus, O'Micron, raises concerns, according to Bloomberg:
But some analysts have put forward a different point of view. In fact,Novel coronavirus did not appear in Wall Street analysts' risk forecasts for the annual outlook for the stock market.In Bank of America Corporation's latest survey, fund managers ranked Covid-19 as the fifth-largest risk after inflation, central bank interest rate hikes, slowing economic growth and asset bubbles.
David Riley, chief investment strategist at BlueBay Asset Management, said in an interview with Bloomberg Television: "We have adapted to the existence of the virus, and its impact on the macro and market is quite limited and weakens over time."
John Spallanzani, a portfolio manager at Miller Value Partners, also said that light trading between the Thanksgiving holiday and the weekend could magnify the asset sell-off:
Until recently, the consensus seemed to be that the latest surge in COVID-19 cases was nothing to worry about. Earlier this week, Morgan Stanley advised investors to watch the outbreak carefully, and JPMorgan Chase & Co agreed that the fourth wave of the epidemic is "unlikely to be a substantial or persistent problem."
"investors can buy at a bargain."
Not only Soochow Securities, but also the spread of this new virus, a number of Wall Street analysts pointed outThe top priority is to find out how effective the current vaccine is.
Emmanuel Cau, an analyst at Barclays, said:
Blackrock international analyst Li Wei said in an interview with Bloomberg:
"this is a healthy adjustment and there may still be some exaggerated declines," said Cedric Ozazman, head of information at Reyl & Cie, a Swiss banking group.But this will be a bargain buying opportunity.”
CICC: risk assets under short-term pressure A-share market may perform better
As there is still no scientific conclusion on the transmission ability of the Omicron variety and the effectiveness of the vaccine, CICC predicted the market trend in three scenarios according to the possible evolution direction of the new virus.
And the relatively pessimistic scenario is that O'Micron will lead toHigher infectivity and lethality, and the vaccine is basically ineffective, leading to a more stringent comprehensive blockade, which may make global prevention and control face a more serious situation.
CICC believes that a certain degree of external or even internal blockade by some countries is inevitable, which may cast a shadow over economic repair, increase the pressure on the supply chain, which is already in a relatively tense state, and then put pressure on asset prices. this is also the main reason why the market is most worried.
In contrast, it is better to be controlled by the domestic epidemic and the buffer of capital outflows from the current account is better superimposed by relatively sufficient policy space and current account.The A-share market may perform betterOn the other hand, there has been a certain correction in risk assets in developed markets, and the "growth gap" in emerging markets has further widened.Safe-haven assets such as gold and US Treasuries may have periodic prices.。
But CICC also pointed out that the situation may also be too pessimistic at present. On the current side, it may be relatively advantageous for governments and pharmaceutical companies to respond more timely and accumulate more experience in response and vaccine development, higher vaccination rates (many countries still face inadequate vaccination at the time of the Delta outbreak), and advances in the development of specific drugs are likely to be better prepared to deal with new variants of the virus.
From an asset point of view, CICC believesGlobal risky assets will not rule out the possibility that they will still be under some pressure in the short term.. Us stocks are likely to remain relatively ahead, with emerging markets under relative pressure due to growth pressures caused by the epidemic and financial pressure on liquidity exits.
Risk reminder and exemption clause
There are risks in the market, so investment should be cautious. This article does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any comments, opinions or conclusions in this article are in line with their specific circumstances. If you invest accordingly, you will bear your own responsibility.