Emerging-market traders are taking the once-bitten, twice-shy approach with Southeast Asia and omicron, dumping shares from the region that was most impacted when the delta variant arrived.
The MSCI AC Asean Index has fallen about 4% since US Thanksgiving — when omicron first made its presence known in markets — underperforming the near 2% decline in Latin American shares and tiny gain in Eastern European equities. The gauge of southeast Asian stocks slumped almost 7% in the two months after the delta variant was officially named at the end of May.
Making matters worse for investors, the region is also threatened by concern over slowing growth in China and the prospect that the Federal Reserve will raise interest rates sooner than earlier anticipated. Traders are looking out for data on China’s exports and inflation this week, alongside more
information on the spread and potency of the new variant.
“Omicron could further push back the timeline on any travel-related and reopening rebound, and this continued ‘stop-start’ approach to reopening could result in weaker near-term growth,” said Alexander Wolf, head of Asia investment strategy at JPMorgan Private Bank in Hong Kong. “From a stock perspective, we’ll likely see some near-term volatility given the amount of unknowns and the unclear impact on growth and policy.”
The appearance of omicron has refreshed memories of the northern summer when the combination of the delta variant surge and low vaccination rates made Southeast Asia the world’s worst virus hotspot. That led to postponed re-openings and reinstated mobility restrictions as deaths in the region soared.
While progress has been made, many Southeast-Asian nations are still lagging behind in vaccinations, according to data compiled by Bloomberg. The Philippines is worst, with only 35% of the population fully vaccinated, with Indonesia not far behind at 37%. Omicron is surging in South Africa, where 25% of the
population are inoculated.
The Philippines’ recovery gained traction in the third quarter on strong growth in household consumption and services, putting the economy on track to return to its pre-pandemic level earlier than expected.
“The emergence of this new variant poses a near term downside risk to our constructive outlook on Asean,” said Zhikai Chen, head of Asian equities at BNP Paribas Asset Management in Hong Kong.
Still, once there is more clarity on the severity of the new variant, markets may rebound quickly, said Joshua Crabb, senior portfolio manager at Robeco in Hong Kong.
“Clearly any new waves extend the time to recovery, but so far it doesn’t appear that omicron is more deadly,” he said.