The equity markets told a tale of two cities: at the beginning it was the best of times but at the end it was the worst of times. The latter can be attributed to "Omicron", the new Covid variant. At this point we don't know a whole lot about Omicron: "will the vaccines still work against it", "how contagious is it" and "does it cause heavier symptoms" are only some of the questions that investors (and frankly all of us) are still asking. Uncertainty remains high for the time being, which puts downward pressure on stock prices. Once we have shaken off the first wave of panic, we must ask ourselves the question: what now?
The short-term market trajectory will likely hinge on the properties of the new variant: in a worst-case scenario, vaccines would not provide adequate protection and case severity would rise. Combined with colder weather (and thus better conditions for virus transmission in the first place), this could lead to prolonged lockdowns, which would once again hit the already troubled sectors like tourism, retail, and their suppliers. However, we could also imagine another scenario: while highly contagious, Omicron could also lead to milder infections and thus lower hospitalization. While infections could be high in this case, the danger would greatly decrease and the impact on the overall economy would be rather small. It could even be the "beginning of the end" of the pandemic: Covid would become endemic but significantly less dangerous.
The latter scenario would be a major positive for the stock market (and indeed our lives) and could lead to a major rally (at least in the short term). The Austrian market seems well position in this case due to its strong focus on banks and other cyclicals. Let’s hope for a (pre-)Christmas miracle, after all the hardship and lockdowns we would surely deserve it!
Author:
Bernhard Haas, Erste Asset Management GmbH
2 December 2021
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Note
Wiener Börse AG would explicitly like to point out that the data and calculations given in this report are historic values, which do not permit any conclusions as regards future developments or value stability. Price fluctuations and loss of capital are possible in securities trading. The contribution is the personal opinion of the analyst and does not constitute a financial analysis or a recommendation for investment by the exchange operating company, Wiener Börse AG.