How dangerous is the new corona variant for the markets?

Frankfurt Stock Exchange (archive image)

The new corona variant is causing irritation on the stock market.

(Photo: dpa)

Frankfurt, Düsseldorf The new corona variant in South Africa surprised investors around the world. In Japan, the leading index Nikkei closed on Friday with the biggest losses in five months, in Germany the Dax is threatened with the biggest daily loss of the year. The Frankfurt stock exchange barometer listed around noon around three percent in the red at below 15,500 points.

The trigger for the course push is a new coronavirus variant discovered in South Africa. According to experts, it could be more contagious than the currently rampant Delta type and more resistant to the previous vaccines. The World Health Organization WHO is already investigating whether the variant with the name B.1.1.529 should be classified as worrying.

This causes uncertainty among investors: The nerve barometer VDax jumped more than 30 percent on Friday to up to 26.7. The higher this index is quoted, the higher price fluctuations can be expected by professional investors in the next 30 days. The previous annual high of 33.5 came from the end of January.

Equity strategists have a nuanced view of the situation. Some even recommend using the price slide for targeted repurchases:

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Emmanuel Cau, Head of European Equity Strategy at Barclays:

“In view of the all-time highs on the stock markets, the thin liquidity at the end of the year and the renewed increase in Covid cases, the setback seems logical. We recommend more downside hedging at these levels.

At the same time, however, we believe that robust growth and prudent central banks should continue to provide some cushion over the medium term, while investors have dry powder to buy setbacks. The key is to see whether or not the current vaccines will remain effective against the variants. The ongoing uncertainty could force central banks to act cautiously. “

Jürgen Hackenberg, fund manager at Union Investment:

“As many questions about the possible risks of the new virus variant from South Africa have not yet been clarified, a final assessment is not yet possible. We assume (also against the background of the shortened trading day on Wall Street on Black Friday) that the markets will only carry out a valuation over the next few days. Therefore, further setbacks cannot be ruled out in the short term.

But investors should remain level-headed and not become hectic. New corona measures can repeatedly influence and mitigate the economic recovery. So far, however, these have only been temporary effects that have not significantly changed the medium-term outlook for most companies. “

Robert Halver, Head of Capital Market Analysis at Baader Bank:

“In the short term, there is irritation on Europe’s stock markets due to bad news about the fourth corona wave and a new, more contagious virus variant against which current vaccines may be less effective without confirmation. As long as nothing is known about infection rates and vaccination protection, the uncertainty remains high and it remains to be seen to what extent the stable fundamental outlook is damaged.

However, suspected economic slowdowns also reduce the need for rapid monetary policy restrictions. Indeed, the calm development of US and German government bond yields testifies to the restrained interest rate fear.

And after all, two industries are experiencing unchecked exceptional booms regardless of the general global economic climate. First of all, climate protection is a new, long-term mega-topic. And the business models in the high-tech sector – digitization, industrial automation, artificial intelligence, quantum communication and IT – remain sustainable sources of profit anyway. In fact, growth versus value stocks are still outperforming. “

Ulrich Kater, Chief Economist at Dekabank:

“The occurrence of a virus variant against which the previous vaccines are ineffective has always been the absolute worst-case scenario on the financial markets. Should this happen, new lockdowns could be expected not only in Austria or Germany, but worldwide. In this case, the stock markets would correct even more and the prospects for a recovery would be uncertain.

It now depends on whether the health authorities will give the all-clear in the coming week or declare a new case of defense against the virus. Conversely, if the all-clear is given in the coming days, share prices will quickly shoot up again. Until then, the caution mode remains switched on.

“A new corona scenario certainly means a setback for the restoration of the efficiency of the global economy. In this scenario, the stabilization programs of governments in particular will be extended. In such a case, the world economy will recover. As in the first corona slump on the stock markets, any significant setbacks should also represent opportunities to build up long-term positions. “

Stefan Rondorf, investment strategist at AllianzGI:

“Today’s decline in the Dax corresponds to a typical risk-aversion movement due to unexpected news,” says Stefan Rondorf, investment strategist at Allianz fund subsidiary AllianzGI. In addition to the difficult Covid situation in Germany, the world has to take notice of a new virus variant from southern Africa that is spreading quickly. It is currently unclear whether or to what extent the previously successfully tested vaccines will continue to be effective.

“As a result, the technical picture has certainly deteriorated for the Dax,” explains Rondorf: After a previous upward breakout, the index fell back to the trading range that was observed over the summer. In principle, many investors have recently paid less attention to the risks posed by the pandemic, he says: “The capital markets are not really prepared for a severe economic slowdown caused by a dangerous virus variant.”

At the same time, however, the following also applies: Should the risk of a dangerous variant harden, this could ease the pressure on inflation via the oil price and falling demand. This in turn eased the pressure on the central banks to tighten their monetary policy. “This could counteract panic selling over the next few weeks. If the US dollar were to appreciate in the event of a worldwide risk aversion, this would also help some Dax members – at least temporarily. ”

More: Fear of new corona variant: Dax slips, investors fear “the perfect storm”

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