December 1, 2021

Omicron - Is It Of Concern To Your Investments?

The initial outbreak of Covid-19 at the beginning of 2020 saw record market plunges. Could the Omicron variant cause something similar again?

Omicron has emerged as a new Covid-19 variant, labelled “of concern” by the World Health Organization (WHO). Markets stumbled as news was released about this new strain of the virus and its potential threat. Many countries are reintroducing restrictions, and that’s caused a stir among some investors. The initial outbreak of Covid-19 at the beginning of 2020 saw record market plunges as investors rushed to sell, fearing the worst. With the Omicron variant emerging, could something similar happen again?

Corona Crash

In times of crisis many investors sell their riskier investments such as equities and either keep it as cash or invest in lower-risk assets such as bonds, until they think the worst is over. Fear of losses and minimising risk is at the forefront of their minds. When lots of investors try to sell at once though markets get dragged down.

That’s exactly what happened during February and March last year. Stock markets tumbled at breakneck speed as Covid-19 led to worldwide lockdowns, severely disrupting businesses and entire industries. In a matter of weeks one third was wiped off the global stock market. The collapse was one of the most severe in recent history.

Past performance is not a guide to future returns Source: MSCI ACWI TR in US, FE Analytics 19 February 2020 to 23 March 2020

The speed of the drop caught many by surprise, and some declared this the start of prolonged market volatility, not seen since 2008. In response to the economic turbulence, governments stepped in with interest rate cuts and financial support for households, businesses, and industries.

What followed surprised some even more than the extent of the falls. The propping up of economies by governments quickly buoying investors’ confidence. So much so that by August the global stock market had recovered, and went on to finish the year 13% up from the day the crash began – well above it’s long-term annual average.

Past performance is not a guide to future returns Source: MSCI ACWI inUS, FE Analytics 19 February 2020 to 31 December 2020

Could It Happen Again?

The Omicron variant was first reported to the WHO on 24 November, and since then markets have reacted nowhere near as dramatically, falling by around 3%. Worries that the vaccine will not provide adequate protection against this new strain and restrictions being brought back in though, means some investors are watching with bated breath. After all, markets fell back in 2020 several months after Covid-19 was first detected.

Whether or not Omnicron ends up sending shockwaves around the world, we think it’s important to remember these events could end up being relatively short-lived. While they may feel significant now, it’s unlikely they’ll register much when you look back over a lifetime of investing.

There’s no guarantee that we’ll see a repeat of 2020’s market volatility – news of the Delta variant passed by without having much impact – and even if there is we think the worst thing you can do is try to second-guess markets. Many who tried last year missed out on the rapid recovery and ended up worse off then if they’d done nothing at all.

In It For The Long Run

It’s an old cliché that investing is a marathon not a sprint. Investors who are patient and can stay calm when markets take you on the occasional wild ride are usually rewarded. It’s important to have a long-term investment plan, and just as important to stick to it during both the good times and the turbulence. Even though there are currently a lot of unknowns about the new Omicron variant, and uncertainties may begin to fill the minds of investors, we believe a long-term outlook is the best approach.

That’s why all our investment decisions are made with the long term in mind. It allows us to remain focused, stay disciplined and helps avoid knee-jerking decisions. It is possible to reduce the ups and downs of returns within an investment portfolio though. So if the thought of market volatility does send shivers down your spine, contact a Skybound Wealth consultant who can advise you on the most suitable investment portfolio for your long-term financial plan and risk tolerance.

Written By
Lucas Wood
Investment Analyst

Past performance is not a guide to future returns. Investment in securities involves the risk of loss and the advice herein cannot be construed as a guarantee that future performance will be reflective of past returns.

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