As we end this calendar year, the battle against the pandemic seems well set to continue into 2022. According to early reports, Omicron, the latest variant of the COVID-19 virus, shows resistance against all existing vaccines, though the manifestations seem to be milder.
As numbers surge in countries like the United States, the UK and other European nations, the world is set to see a renewed phase of lockdowns and restrictions. Just as we thought we were recovering from the pandemic of the century, the new variant is causing concern worldwide and has shaved off trillions of dollars of market value.
The most important country for financial markets is the United States. The situation in that country is a cause of concern, if not of alarm yet.
“Omicron is about 25 per cent more infectious, evades prior immunity to a greater degree (25 per cent), and causes less severe disease, again by about 25 per cent, all relative to Delta,” says the latest analysis by McKinsey, a global consultancy firm. The study further adds that Omicron could lead to a higher peak burden of disease than in the second half of 2021 for the United States.
The transition from pandemic to endemic
For financial markets, future growth prospects matter the most. Interest rates are on the rise, and economic activity is at risk due to the rapid spread of the Omicron variant. It is abundantly clear from the US Federal Reserve statements that interest rates are rising in that country in 2022. The US Federal Reserve chairman Jerome Powell used more hawkish language to curb fears of rising inflation. He said the US could go for three interest rate hikes in 2022.
He also noted that the high inflation rate in the United States was a concern, although the economic growth remained robust. Last month, we said that ‘stagflation’ was a clear and present danger for the world. The first two quarters of 2022 would determine if that happens as we stare at persistently high inflation and slow growth due to limited economic activity.
For now, there are indications that the so-called “return to normalcy” is likely to be delayed than we thought. Businesses keen to get employees back to work are delaying the whole thing indefinitely. Apple, the most valuable company globally, announced a $ 1000 work-from-home bonus to employees.
That means all the math you did a few weeks ago needs a review. Business Travel, which used to witness spending of around $ 1.4 trillion worldwide, has witnessed half of the income dwindle in 2020. It recovered a bit in 2021 at $ 754 bn. However, according to one report by the Global Business Travel Association, it would take till 2024 for the global business travel spend to go back to pre-pandemic levels.
The key here is how the world adapts to the transition of COVID19 from a pandemic to an endemic disease. It simply means treating COVID19 at par with Influenza and tackling it through the year. Enforcing draconian lockdowns across-the-board would harm any hope of an economic activity revival.
McKinsey, a global consulting firm, argued in an article recently that the shift of COVID-19 is more psychological, as we will be deprived of the satisfaction that a clean pandemic endpoint would bring. “Endemic diseases are here to stay”, The McKinsey analysis said that societies would have to adapt to living alongside COVID-19 by making deliberate choices about how to coexist. Four things would happen to tackle the endemic. The four key parameters McKinsey recommends are defining a new normal, tracking the progress, limiting illness and death, and stopping the transmission.
Countries that can manage the transition of the COVID-19 pandemic to an endemic disease successfully would be able to move forward faster than others. For Investors key would be to look beyond this uncertainty having learnt this critical lesson through the Covid crisis and stay invested. Any healthy correction in the market makes the Risk Reward more favorable and such situations are good opportunities to add & re-balance portfolios.