The new Covid-19 variant has been wobbling financial markets and may continue to do so temporarily.
The new strain, discovered in southern Africa, weighed on global markets on Thursday November 25. Travel stocks, hospitality firms, and bank stocks were among the hardest hit.
The World Health Organisation met on Friday November 27 to analyse the new variant and determine if the B.1.1.529 strain should be designated a variant of “interest” or of “concern.”
The variant, which was identified late in November, is said to carry an “extremely high number” of mutations.
On Friday November 26, Asia Pacific markets were down around 2 per cent, and European stock futures predict a more than 2 per cent drop at opening trades. Markets braced themselves as US stock futures opened lower.
Now, experts are determining whether the new variant is more transmissible or more deadly than previous ones.
The fact that a new strain has been discovered and, critically, that at this stage we know little about it has caused jitters in the financial markets, which loathe uncertainty. The headlines have caused a knee-jerk reaction.
In addition, Wall Street was closed on Thursday November 25, meaning that a large bulk of global trades were missing, making other moves more pronounced.
But this wobble is likely to be temporary, with markets remaining bullish for the time being.
Global shares have jumped 16 per cent this year with investors focusing on the post-pandemic economic rebound. They largely shrugged off the Delta variant that caused a mini wave of market nerves in the summer, and it’s likely that markets will do the same with this new variant.
This is because, as Delta showed, mutations are now expected and we have more of a blueprint about how to deal with them.
Instead, global financial markets will be focusing on other pressing issues, including high inflation caused by supply side bottle necks and the likelihood of a quicker pull away from ultra-loose monetary environment.
Markets will temporarily wobble on the uncertainty of this new Covid variant, but will remain bullish and largely focused on other issues.
And this points to the problem with people following a pure passive strategy that does not carry advice with it: they are subject to volatility with little understanding of the nature of markets, and likely to make knee-jerk decisions.
Pure passive investing means that the investors are limited to a specific index or predetermined set of investments with little or no variance.
As such, investors are trapped into those positions, which means in times of greater market volatility, when there are key buying opportunities to expand and grow their portfolio, they can miss out.
Pure passive investing also opts to disregard compelling evidence that the market portfolio could include stocks with extremely poor expected performance.
