UBS analysts say the concerns are justified, but advise investors not to go ahead - What strategy do they propose, in which sectors do they remain positive despite increasing volatility?
The sell-off recorded by the global markets on Friday examines a report by UBS, attributing the strong reaction of the markets to the concerns about the effectiveness of the vaccines that the new Omicron mutation of the coronavirus brought back to the fore.
As UBS points out in its analysis, the strong concern is due in part to the large number of mutations - over 30 - in the new B.1.1.529 strain of the virus, which was originally identified in South Africa and which the World Health Organization (WHO) described as a "disturbing mutation".
The bank's analysts, although they believe that volatility is expected to continue in the near future, prefer to maintain a stable investment strategy and diversify investors' portfolios, while distinguishing the sectors that prove to be resilient.
The reaction of the markets
On Friday, the S&P 500 closed down 2,3%, the pan-European Stoxx Europe 600 fell 3,7% and the Asian Hang Seng index fell 2,7%. The VIX index (the so-called Wall Street fear index) jumped 10 points to 28, its highest level since February 2021.
Bonds rallied, with US 2-year and 10-year bond yields falling by 14 and 16 basis points, respectively, as investors take into account the risks to GDP growth and a possible slowdown in the lifting of monetary support measures.
The sectors affected by cyclical factors of the economy received the strongest blow with the S & P500 financial services falling by 3,3% and energy by 4,1%, the latter pushed by the fall of 11,5% in oil prices Brent.
Shares in growth-related sectors, on the other hand, found support from falling yields, with the Nasdaq eventually falling just 2,2%, while the S&P IT and communications sectors fell 2,6% and 1,8, respectively. XNUMX% respectively.
The US dollar (DXY -0,7%) fell, while the Swiss franc (+ 1,4%) and the Japanese yen (+ 1,8%) strengthened against it. The weakening of the dollar and the fall of real yields strengthened the gold (+ 0,2%).
Because UBS insists on its basic scenario
According to UBS analysts in their report, last week's news about the increase in cases COVID-19 in Europe and the reintroduction of restrictions - including the lockdown in Austria - did not worry the markets. The difference with the Omicron mutation is that it has brought back to the forefront concerns about vaccine efficacy.
Analysts say the concerns are justified, but advise investors not to jump to conclusions based on low and insufficient data with a large margin of error.
According to them, the findings so far are based on a very small number of patients from countries with high rates of infection and low rates of vaccination. In addition, scientists do not yet have a clear picture of whether the large number of mutations (which is expected) will translate into greater transmissibility or the response of vaccines to them.
Concerned that the new Omicron mutation will require the development of new vaccines, USB analysts cite statements by Pfizer CEO that the company could develop a new vaccine within 100 days of the new mutation being sequenced. and 4 billion doses in the first 12 months.
According to UBS analysts, "Given the information available, the Omicron mutation does not change our basic working scenario that the global economy is on a (difficult) path to full reopening and growth will be strong. It should also be noted that concerns about its impact COVID-19 growth prospects are expected to allay investors' fears of a possible premature tightening of monetary policy. "Before the Thanksgiving holiday, investors were more concerned about the tightening of monetary policy after the data on inflation and the re-appointment of Jerome Powell to the Fed."
The report highlights the risks of the new mutation becoming resistant to existing vaccines, as well as the possibility that governments in large economies will react too quickly with restrictive measures that will have an impact on growth.
The strategy
According to the report, the bank's analysts do not favor the hasty changes in the investment strategy of their customers, estimating that the market reaction became stronger than the relatively low liquidity that preceded the Thanksgiving week and the volatility could be maintained on days as systematic investors adjust their positions.
In addition, they say that they will not be surprised if there is more volatility in the next period after such a strong rally, but they believe that this serves as a reminder of the importance of diversifying portfolios in markets and industries.
The bank's analysts remain positive about the energy and financial sectors despite the recent volatility in them.
"We believe that the energy sector will be supported by oil prices, which are likely to remain high this year and next. We estimate that Brent oil will reach $ 90 / barrel by March. From April 2020, despite the emergence of new mutations in the virus, the demand for oil is growing steadily, although unevenly, and we expect this trend to continue, with demand currently hovering close to 100mbpd. In addition, OPEC + may decide to slow down, or even reduce production, at next week's regular meeting. "
As for the financial sector, USB analysts say that "it was hit by the fall in yields on Friday, which comes after a strong third quarter of results with the industry's profits having been upgraded, while the latest data from the European Central Bank "(ECB) show an increase in private sector credit expansion."
According to the report, the bank's analysts also suggest the following strategies to their customers:
Look for opportunities in the healthcare industry. The industry was among those with the best returns on Friday. It is important to maintain positions in defense sectors of the economy (including the health sector, pharmaceuticals, food). We believe that the health sector offers both defense and development opportunities, and we are optimistic about the industry's tactical and strategic prospects.
Diversify your portfolio with alternatives. Increasing exposure to alternatives can benefit during periods of increased volatility. Because of their liquidity, such placements offer some degree of protection when selling in declining markets. In addition, some hedge fund placements can outperform declining markets.
SOURCE: Newmoney.gr (link is external)