It’s been matter of days since Omicron was first identified as a “variant of concern,” but here are our initial observations:

• While it is early days in our understanding of this new variant, we do know that each successive wave of COVID has been greeted by a more muted market reaction and a swifter reaction by policymakers to protect public health. For example, it took over 3 months for various governments to halt travel to India, where the Delta variant is believed to have originated. Flights to South Africa and other African nations were halted within days. Likewise, corporations have proven themselves quite resilient this year in spite of the Delta wave this spring (and huge supply chain issues this fall). In short, while a new variant will weigh on growth, the global economy is learning to adapt to this disease.
   
• The science is in place to address COVID and can adapt quickly. Over the weekend, big vaccine producers companies like Pfizer and BioNtech made it clear that a new vaccine tailored to the Omicron variant could be available in 100 days, and that they would know within two weeks how the existing vaccines performed against this new variant.  The EU drug regulator indicated that, if needed, a new vaccine could be approved in 3-4 months.
   
• The real question is whether this mutation makes COVID more transmissible or more deadly (or both). If early indications that Omicron produces very mild symptoms while being more virulent hold, we may have reached the “live with it” stage where the disease becomes endemic. This will be very constructive for growth going forward as the global economy puts COVID in the rearview mirror.  If not, and the vaccines are ineffective, will policymakers respond with more restrictions or lockdowns? This would be negative for growth in the short-term as the new round of vaccines are developed and approved.  Our base case is that Omicron will fall somewhere in the middle, weighing on growth in the short term (which may delay central bank actions to hike rates) but, like previous variants, eventually subsiding.   
   
• The hardest hit stocks were in the oil and gas sector, banks (which are sensitive to falling interest rates), and the re-opening plays (travel, leisure and airline stocks). 
   

At this point, we don’t see any point in making drastic changes to our portfolios, as we know our holdings can be resilient during the adverse market conditions we saw last year. Our base case is that, like the Delta wave this earlier this year, Omicron will not derail the huge economic recovery we’ve seen over the past year, though it may dampen growth in the short term. Again, it is early days, and we will continue to monitor the situation and adjust as required.

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