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WeekWatch -‘Last week a new COVID-19 variant emerged as investors were reminded just how tenuous the global recovery could be’ Nov 21

WeekWatch -‘Last week a new COVID-19 variant emerged as investors were reminded just how tenuous the global recovery could be’ Nov 21

Last week a new COVID-19 variant emerged, weakening markets, as investors were reminded just how tenuous the global recovery could be.

The new variant, named B.1.1529 but dubbed ‘Omicron’ by the World Health Organization, first appeared in Southern Africa. There are concerns it could be substantially different from (and more transmissible than) other known variants, including the Delta variant which swept the globe earlier this year. The UK Government immediately responded by suspending travel to six African countries, including South Africa. Over the weekend, restrictions in the UK were increased.

For investors, this brought back memories of 2020 and the first half of 2021, when travel suspensions hammered the leisure and travel industries. These were again the sectors which suffered most over the past week. British Airways owner International Airlines Group, for example, fell 15% between Thursday and the start of Friday, before recovering some of these losses over the remainder of Friday.

These weren’t the only industries which saw drops, however, and overall the FTSE 100 dropped over 3% upon opening on Friday. After a strong October and early November, The FTSE has generally struggled since mid-November, and has seen much of the progress it made in the previous month wiped out. For investors, the new variant will spark memories of disrupted supply chains and the potential for more lockdowns.

Coming so soon after COP-26, it will also serve as a reminder of the effect natural disasters can have on investments. Conversely, investors can have a positive effect on the planet by investing responsibly, which could be key to reducing the frequency of future natural disasters.

Looking back at COP 26, for example, IMPAX Asset Management Group’s Fonder and CEO Ian Simm, noted: “I believe we’re in the foothills of a new industrial revolution, as markets for products and services consistent with a “net zero” economy expand rapidly. However, it is unlikely that these markets will emerge with sufficient scale and quickly enough without appropriate policies. Investors have an important role to play in helping policymakers get these right.

“Fundamentally, I think we emerge from COP-26 with renewed confidence in how to get national economies on track towards net zero. With the foundations for progress laid in almost all key areas of the real economy, the hard work starts now.”

The STOXX Europe 600 index followed a similar pattern as the FTSE 100, with a 3% fall between the end of Thursday and early Friday. Friday’s trading session saw among the worst openings it has suffered in the past year. Overall, the Index finished the week over 4% down from its 17 November peak. The EU was already dealing with rising COVID-19 cases prior to the new variant, with Austria going into lockdown two weeks ago, and Germany only narrowly avoiding doing the same, so the new variant compounded these fears as consumers began to prepare for Christmas.

Unsurprisingly, US markets followed a similar pattern at the end of the week, dropping on the news of the new variant.

COVID-19 was not the only news which affected US markets last week. At the start of the week, President Biden nominated Jerome Powell for a second term as Federal Reserve chair. In this position, Powell has a lot of sway on US interest rates, as well as the speed at which the country eases its economic support measures brought in to help with the effects of COVID-19. Powell represents a continuation of previous policies, and all eyes will be on him when the Federal Open Market Committee (FOMC) meet in December to decide the pace at which to taper economic its economic support measures. Minutes released of the most recent FOMC meeting suggested several members of the committee are in favour of speeding up the process. However this was from before the new COVID-19 variant, making it hard to tell what direction it will take when it meets.

While the UK, US and EU are all holding fast on raising interest rates for now, last week saw both New Zealand and South Korea raise their interest rates. Both countries had already raised rates once sine the pandemic struck, as they looked to combat rising inflation and increasing levels of household debt.

Turkey, which two weeks ago lowered its rates in an unorthodox move in the face of growing inflation, continued to see the value of the Lira fall for most of the week, before a slight bounce back on Friday – though this was not enough to compensate for previous losses.

IMPAX Asset Management is a fund manager for St. James’s Place.

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