Markets are Crashing Due to COVID-19 Omicron Variant: Should Investors Be Worried?

Just when we thought we were on the path to recovery, COVID-19 has thrown us another curveball.

A new COVID-19 variant named “Omicron” has been classified as a variant of concern by the World Health Organisation (WHO).

Preliminary evidence suggests that Omicron can bring about an increased risk of reinfection.

Scientists are now scrambling to gather more information on this new threat to determine the next course of action.

Markets reacted negatively to this new development by falling sharply lower.

In the US, the S&P 500 Index (INDEXSP: .INX) fell by 2.3% since 24 November, while the bellwether Straits Times Index (SGX: ^STI) fell by 1.7% last Friday and is down another 1% as at the time of writing.

With more bad news swirling around, are investors justified in feeling worried?

Border closures and restrictions

The news of the rapid spread of Omicron has led to countries re-introducing travel restrictions.

The move is a blow to the aviation and tourism industry just when the launch of vaccinated travel lanes was taking shape.

Israel has even taken the drastic step of banning foreigners from all countries for 14 days to stop the virus from entering the country.

Since last Friday, Singapore Airlines Limited (SGX: C6L), or SIA, fell by 6.1% from S$5.25 to S$4.93 while ground handler SATS Ltd (SGX: S58) declined by 4.2% to S$3.90.

Meanwhile, bank stocks are also being sold down over fears that economic activity will seize up.

DBS Group (SGX: D05) fell by 3.6% from S$32.15 to S$31 while OCBC Ltd (SGX: O39) saw its shares fall by 2.7% to S$11.41.

Steady as she goes

Not all looks bleak, though.

Glove manufacturers have seen their share prices rebound sharply as demand for healthcare gloves looks set to soar with the discovery of Omicron.

Top Glove Corporation Berhad (SGX: BVA) saw its shares surge by 38% from S$0.72 to S$1, while Riverstone’s (SGX: AP4) shares jumped by 16% to S$0.80.

Investors are coming to terms with the fact that the pandemic is far from over and that these businesses should enjoy steady demand for their products.

Medtecs International (SGX: 546), a manufacturer of personal protective equipment (PPE), saw its share price soar by 76% from its year-low of S0.29.

REITs have also held steady amid the carnage.

Keppel DC REIT (SGX: AJBU) has inched up by S$0.01 to S$2.39 while Mapletree Industrial Trust (SGX: ME8U) has barely budged from its previous close of S$2.71.

These industrial REITs have tenants that were unaffected throughout the pandemic, and investors remain confident that distributions can continue without interruption.

A cat and mouse game

Unfortunately, new variants should not be a surprise.

The current dominant variant, Delta, was the fourth variant of concern to be identified after Alpha, Beta and Gamma.

With Omicron being the 15^th letter of the Greek alphabet, this implies that there are other variants that had been identified but were deemed not significant enough to report on.

While more information still needs to be obtained on the transmissibility and virulence of the Omicron strain, investors should expect that many more variants could crop up even after Omicron.

The good news is that the world now has experience in handling a pandemic and knows how to react to minimise deaths and serious illnesses.

18 months ago, there was no playbook on how to proceed when COVID-19 first started spreading like wildfire.

Even if current vaccines are less effective against Omicron, vaccine leader Pfizer (NYSE: PFE) has pledged that an updated version of its highly-effective vaccine will be ready in 100 days.

Also, Merck’s (NYSE: MRK) COVID-19 pill has proven effective in treating this disease, even though it may be less effective against Omicron.

In short, scientists and governments now have a plethora of tools that can be used to combat this disease.

And as humans become better at sequencing the genomes of variants and in designing new vaccines to counteract their effects, each successive variant should also become less dangerous.

Get Smart: Hold on to quality companies

It’s natural to fear the unknown.

And there is a lot that we do not know about Omicron at the moment.

So yes, it’s justified to feel worried.

But it would be a mistake to sell your stocks just because of Omicron.

What we do know is that humans will eventually triumph against the virus, just as we did with the Delta variant.

Having lived through 2020 and much of 2021, we have a better sense of the companies that do well during these periods and ones with the capacity to survive and thrive despite the challenges.

As such, at The Smart Investor, we are not selling any stocks.

Instead, you should continue to hold on to great companies that have the track record and resilience to get through an economic storm.

If anything, you should even consider buying more high-quality names on the cheap to add to your portfolio.

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Disclaimer: Royston Yang owns shares of DBS Group, Keppel DC REIT and Mapletree Industrial Trust.

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