WeeklyWatch – Markets slump as new COVID-19 variant is detected

30 November 2021

Stock Take

New kid on the block

A new COVID-19 variant was detected last week – weakening markets, and reminding investors just how delicate the global recovery could be.

Named B.1.1529 but dubbed ‘Omicron’ by the World Health Organization, the new variant first emerged in Southern Africa. There are worries that it could be drastically different from (and more transmissible than) other known variants – not least the Delta variant, which infiltrated the globe earlier this year. The UK Government reacted by promptly suspending travel to six African countries, including South Africa. Restrictions in the UK were increased over the weekend, too.

For investors, the situation was reminiscent of 2020 and the first half of 2021, when travel suspensions thrashed the leisure and travel sectors. Again, these industries suffered most over the last week, with British Airways owner International Airlines Group falling 15% between Thursday and the start of Friday, before recouping some of these losses during the rest of the day.

Other industries also witnessed drops, and overall the FTSE 100 fell over 3% upon opening on Friday. Despite a strong October and early November, the FTSE has struggled somewhat since mid-November, seeing much of the progress it made in the previous month obliterated. The new variant will remind investors of disrupted supply chains and the potential for more lockdowns.

Law of nature

Hot on the heels of COP26, it will likewise serve as a reminder of the impact of natural disasters on investments. Conversely, investors can in fact have a positive effect on the planet by investing responsibly – this could be crucial if we’re to have any hope of reducing the frequency of future natural disasters.

Looking back at COP26, for instance, IMPAX Asset Management Group’s Founder and CEO Ian Simm, commented:

“I believe we’re in the foothills of a new industrial revolution, as markets for products and services consistent with a “net zero” economy expand rapidly. However, it is unlikely that these markets will emerge with sufficient scale and quickly enough without appropriate policies. Investors have an important role to play in helping policymakers get these right.

“Fundamentally, I think we emerge from COP26 with renewed confidence in how to get national economies on track towards net zero. With the foundations for progress laid in almost all key areas of the real economy, the hard work starts now.”

Repeating patterns

The STOXX Europe 600 index followed a similar pattern as the FTSE 100, with a 3% fall between the end of Thursday and early Friday, and Friday’s trading session saw some of the poorest openings it has experienced in the last year. Overall, the Index closed the week more than 4% down from its 17 November peak. The EU was already grappling with rising COVID-19 cases quite before the new variant emerged, with Austria going into lockdown a fortnight ago, and Germany only narrowly avoiding following suit. The new variant intensified these concerns as consumers started preparing for Christmas.

It will come as no surprise that, in light of the news of the new variant, US markets likewise followed a similar pattern at the end of the week.

Market overview

In other US news, at the start of the week, President Biden nominated Jerome Powell for a second term as Federal Reserve chair. Powell is set to influence US interest rates in this new position, as well as the speed at which the country tapers its economic support measures that were implemented to mitigate the effects of the coronavirus. Powell represents a continuation of previous policies, and the spotlight will be on him when the Federal Open Market Committee (FOMC) meet in December to decide the pace at which to ease its economic support measures. Minutes released of the most recent FOMC meeting hinted that several members of the committee are in favour of accelerating the process. However, this was prior to the new COVID-19 variant, making it difficult to ascertain what direction it will take when it meets.

The UK, US and EU are all holding fast on raising interest rates for the time-being, yet last week saw both New Zealand and South Korea raise their rates. Both countries had already actioned this once since the pandemic broke out, as they sought to tackle rising inflation and increasing levels of household debt.

Having lowered its rates two weeks ago in an unconventional move given growing inflation, Turkey continued to see the value of the Lira fall for much of the week, before a slight recovery on Friday – however, this was insufficient to compensate for previous losses.

Wealth Check 

There are many reasons why a young individual might not feel ready to contemplate their pension savings.

Yet there are also compelling reasons for taking action sooner rather than later. Perhaps the strongest argument is that putting in a bit of work now means you make life a lot easier for yourself in the future.

For example, the tax allowances, reliefs and exemptions to which you’re entitled can make a marked difference to your retirement pot. Even if the current economic outlook isn’t all that positive, those tax advantages are there for the taking.

It all begins with your pension – if you’ve taken out a pension plan with your employer, they’re probably contributing to it as well. Depending on certain limits, you’ll also get tax relief on your contributions – in other words, the government will increase the amount you pay into a pension.

As a basic-rate taxpayer, for every £80 that you pay into your pension, the government gives you another £20 in tax relief (meaning a £100 contribution costs you just £80). As a higher-rate taxpayer you get 40% tax relief, so they have to pay in only £60 for every £100 contribution, while those on the 45% Income Tax rate can claim relief at 45%. (This is on the basis that any tax relief over the basic rate is claimed via their annual tax return).

If you’re in your 20s or 30s, getting a tax-efficient pension plan up and running won’t always be realistic. Yet tax allowances and reliefs can play an important role if you find yourself starting late and trying to play catch-up.

While retirement can seem too far removed for younger generations to think about using the various long-term savings options available, the impact of tax reliefs and compounding growth mean even saving a little now could go a long way later on.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

The Last Word

“[The Omicron variant] is concerning, but it is still early days in terms of understanding in how it actually reacts in transmissibility, and in terms of how dangerous it is.”

– Health Minister Edward Argar says it’s too early to predict the impact of the latest COVID-19 variant.

The information contained is correct as at the date of the article.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

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