Omicron_it’s too soon to panic, says Goldman Sachs

It’s ‘too soon’ for investors to panic over Omicron

Goldman Sachs, one of the world’s top three investment banks, does not think the emergence of the omicron variant of Covid-19 is sufficient reason to make major changes to investment portfolios.

Meanwhile, James Glover, the managing executive: Markets at Nedbank Corporate and Investment Bank, said the market will be keeping a very close eye on the omicron data in Gauteng and particularly hospitalisations and death statistics for the vaccinated.

If we don’t see a material difference in these statistics compared with the delta or beta variants, then we can expect the recovery to continue. But if we do, we will be in for a rough ride as global growth is downgraded again. Either way, there is likely to be new global discussion on how we live alongside this disease, Glover said.

In a note published on Friday, Goldman Sachs London trader Borislav Vladimirov said although there was insufficient information to forecast a global wave of omicron, a high rate of transmission almost inevitably leads to a variant’s dominance.

South Africa’s National Institute for Communicable Diseases said the mutation is unlikely to be more malicious, and existing vaccines will most likely continue to be effective in preventing hospitalisations and deaths. The current polymerase chain reaction and antigen tests are expected to continue to identify the mutation.

“As such, while we would monitor the situation in Gauteng closely over the next month, we do not think the new variant is sufficient reason to make major portfolio changes,” Vladimirov said.

At the same time, given the time of the year, and liquidity and policy risks in December, investors could consider short-term hedges for growth-sensitive risky assets.

Vladimirov said the potentially high transmissibility of omicron has triggered concern in the markets.

However, the fast acceleration data could be skewed by location. The virus is spreading in Gauteng, South Africa’s most densely populated province. In addition, the spread of the variant could have more to do with the low lockdown level than with omicron’s characteristics.

He said cases of B.1.1.529 have also been identified in Botswana, Israel and Hong Kong. If the variant is highly transmissible, it is most likely that it will eventually spread despite travel restrictions.

Hospitality in for another hammering

Glover said the “knee-jerk reaction” of clamping down on travel from Southern Africa has been received poorly in South Africa and internationally, and he expected the rhetoric to ease, particularly because “it looks like the horse has bolted and many countries are detecting community spread of omicron already”.

He said there “is little appetite and, most importantly, political capital, for lockdowns, and I suspect the threshold will be set very high to go back to anything like what we saw during the beta and delta outbreaks. This will likely give some sectors a reprieve versus previous outbreaks but won’t be enough to save the hospitality sector over the festive season, which is in for another rough ride as the growing momentum in global travel is brought to a screeching halt”.

President Cyril Ramaphosa’s speech on Sunday “told us little we didn’t know”, Glover said.

“I suspect his pleas for the unvaccinated to get to their nearest vaccination site will fall on deaf ears. There is probably going to be a need for more interventionist measures to get the numbers up – whether that takes the form of vaccine mandates, supporting business in their efforts to enforce vaccine mandates, or the current European approach of targeted lockdowns on the unvaccinated.”

The uncertainty over whether vaccines will be effective against omicron won’t help uptake. Most theoretical models point to “immune escape”, but as was the case with the beta and delta variants, we will have to wait for actual data, he said.

The known unknowns

Vladimirov said the following was not yet known about omicron:

  • The variant’s impact on hospitalisations and mortality. “A careful monitoring of the Gauteng data over the next two weeks is essential.”
  • How it responds to vaccines. There are reports that two of the cases were fully vaccinated. This is a very small sample from which to draw conclusions, and it is not known for how long the patients were vaccinated. “What we know from delta is that antibody levels wear off between six and nine months after the second vaccine and that while the vaccines are less effective in preventing infection, they are still highly effective in preventing hospitalisation and death. For the time being, there is no reason to believe that this variant will be different in that respect.”
  • Whether the Pfizer pill will be effective against the new mutation.
  • Whether the European wave is being driven by the new variant. The European data comes with about a month’s delay from sequencing, so we should know more by the third week of December.

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