Travel shares vulnerable to Omicron variant but it’s not all bad news

Posted: 29 November 2021 11:32 am
News
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The Australian share market is continuing its sell-off, but there's a silver lining for investors.

Markets around the world remain in the red, as investors are spooked by fears of the latest COVID-19 variant Omicron impacting the economic recovery.

As anticipated the S&P/ASX 200 started trading down, falling 1.10% on the opening bell.

This follows a rough Friday for shareholders when the S&P/ASX 200 index futures dived 104 points, or 1.4% to 7,166 points at the same point as the Australian dollar hit a 12-month low of US71.23c.

Unsurprisingly, travel stocks were the hardest hit.

During Monday's trading, Flight Centre fell 9.4% to $15.53, Webjet dropped by 7.9% to $4.93 and Qantas is down 6% to $4.70.

Australia was not alone in the sell-off.

The US listed S&P 500 sank 2.3% Friday US time, while the STOXX Europe 600 was even more heavily traded, down 3.7%.

Too early to know how significant the strain is

While markets are forward looking with sell-off pre-emptive of any government changes, AMP Capital's chief economist Dr Shane Oliver reminds investors it's too early to know much about the new strain.

"We know Omicron has more mutations than Delta (32 in the spike protein and 10 in the receptor binding domain compared to only 2 for Delta) and it is likely more transmissible as it's rapidly dominating new infections in South Africa," he said.

"But it's not clear yet that it results in more severe infections and by how much it will impact vaccine effectiveness against infection and importantly against serious illness."

However, the economist states the falls might last a little longer than investors hope.

"It may take a few weeks to get a clearer picture," Dr Oliver said.

"So far the falls in markets just look like normal corrections in a bull market but of course much will depend on what we learn about the new virus and its impact in the next few weeks."

Temporary wobble but concerns to be "shrugged off"

According to deVere Group's CEO Nigel Green, despite the heavy sell-offs, especially with travel, hospitality and bank shares, it will only be a temporary blip.

"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."

According to the CEO "the headlines have caused a knee-jerk reaction", across world markets.

He continues: "This wobble is likely to be temporary with markets remaining bullish for the time being.

"Global shares have jumped 16% 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."

Green is expecting a similar reaction to the newest variant.

"This is because, as Delta showed, mutations are now expected and we have more of a blueprint about how to deal with them," he continues.

"Instead, global financial markets will be focusing on other pressing issues including high inflation caused by supply side bottlenecks and the likelihood of a quicker pull away from ultra-loose monetary environment."

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