Omicron! What’s going on?

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Omicron CoronaVirus Variant-Image credit by Gerd Altmann from Pixabay.com

Asia-Pacific markets closed mixed on Thursday amid concerns over the spread of the Omicron variant. This led Investors in Asia Pacific stocks to make calculated moves following news of the first Omicron variant case in the US. It could take several weeks to understand the extent of the danger posed by the new variant. The Omicron variant, which was first detected in South Africa, has been spreading rapidly around the world.

The US reported its first case on Wednesday, impacting Wall Street sentiment with investors being concerned about the re-imposition of restrictions, which could derail the rebound in the world’s largest economy. Adding to concerns in Asia, South Korea reported its first five cases of the latest variant, while India reported two cases. Asian markets had already been range-bound after the Fed chief JP reiterated that policymakers are considering accelerating the central bank’s bond-buying programs, a move that could result in earlier-than-expected interest rates hikes.

Investor risk appetite has also been constrained by inflation across the globe, amid supply chain disruptions and labor shortages. China’s stocks settled lower, with the Shanghai Composite index declining 0.10% and the Shenzhen component down 0.194% on Thursday. Japan’s Nikkei 225 fell 0.65%, while the Topix index lost 0.54%. Japan’s consumer confidence index stood at 39.2 for November, unchanged versus the prior month.

Hong Kong’s Hang Seng index gained 0.55%, after recording losses earlier. Meanwhile, Australia’s S&P/ASX 200 declined 0.15% to 7,225.20, despite positive trade data, which indicated a surplus of AUD11.22 Bio for October, beating the consensus estimate of AUD11 Bio.

India’s BSE Sensex climbed 1.35%, recording gains for the second consecutive session. The sentiment was supported by news of the economy expanding by 8.4% in the July to September quarter. Markets will continue monitoring the spread of the Omicron variant and any update from the scientific community about the threat posed by it. Global investors also await the release of data on US nonfarm payrolls.

Crude oil will be in focus today after closing higher on Thursday. Crude futures recorded gains on Thursday following a decision from the OPEC+ (Organization of the Petroleum Exporting Countries and its allies) regarding its production policy. The OPEC+ group announced plans to roll over its current output policy, despite concerns around the demand for fuel being impacted by the spread of the new Omicron variant.

The group decided to boost monthly output by 400,000 bpd (barrels per day) in January. The OPEC+ said it would “continue to monitor the market closely and make immediate adjustments if required.”

The OPEC+ Joint Technical Committee will meet on January 3, while the meeting of the OPEC+ Joint Ministerial Monitoring Committee is scheduled for January 4. Oil traders remained concerned about fresh restrictions being imposed by various countries in a bid to control the spread of the new strain, which could hit energy demand.

WTI crude for January delivery gained 93 cents, or 1.4%, to close at $66.50 a barrel on the NYMEX on Thursday. February Brent crude gained 80 cents to reach $69.67 a barrel on ICE Futures Europe, after falling 0.5% in the previous session. In November, both Brent and US front-month contracts recorded their steepest percentage monthly declines since March 2020, with WTI shedding 21% and Brent down 16%. In other energy products, January gasoline added 2 cents to $1.97 a gallon, while January heating oil climbed 2 cents to $2.10 a gallon on Thursday.

Natural gas declined even though the EIA reported a contraction of 59 bio cu ft in domestic supplies of natural gas for the week ending Nov 26. Traders eagerly await the release of US NFP data. The US economy, which added 531,000 jobs in October, is expected to add another 550,000 jobs in November.

The US unemployment rate is projected to decline to 4.5% from 4.6% in the previous month. Markets will also keep an eye on the release of crude oil rigs data from Baker Hughes today. European trading indices closed lower on Thursday, with the FTSE 100, DAX 40, CAC 50, and STOXX Europe 600 down by 0.55%, 1.35%, 1.25%, and 1.15%, respectively.

Close at home, the GCC index dropped 4.7% as Omicron spooked investors. GCC markets declined for the first time in 13 months in November-2021 as the new Covid19 variant sent shivers across financial markets globally. The MSCI GCC index dropped 4.7% during the month, in line with most major exchanges globally. In terms of market cap, the total value of listed stocks in the region declined by $ 205 Bio to reach $ 3.5 Trillion by the end of the month. The monthly decline during November-2021 dented the performance of GCC markets since the start of the year which now stands at 29.7%.

Within the GCC, Abu Dhabi and Dubai exchanges remained largely resilient to the global pressure, although even these markets were not spared on 28-November-2021, which saw steep global single day sell-off, with declines of 1.8% and 5.2%. Most GCC markets reported a decline during November-2021, barring ADX and DFM that reported a gain of 8.7% and 7.3%, respectively.

Saudi Arabia’s TASI reported the biggest decline of 8.1% losing almost $ 240.3 Bio in market-cap during the month. The decline highlighted the impact of the slide in oil prices to below the $70bn mark, although briefly. The month also saw Abu Dhabi further strengthening its global lead in terms of market performance since the start of the year with a return of 69.4%, one of the highest globally.

Dubai also scaled up to be the third-best performing market in the GCC with a YTD return of 23.3%. On the other hand, Saudi Arabia remained the second-ranked market in the GCC, but with a smaller lead over Dubai with a gain of 23.8%.

The GCC sector performance chart showed declines across the board during November 2021 with the exception of Diversified Financials and Telecom indices that reported gains of 5.3% and 4.2%, respectively, while Real Estate was almost flat with a gain of 0.1%. Consumer Durable & Apparel was the biggest decliner with a monthly fall of 21.5% followed by Utilities and Pharma & Biotech indices with declines of 13.5% and 12.4%, respectively. Belated Thanksgiving and happy profit taking!

Geoffrey Muns

Geoffrey Muns is an Independent Financial Advisor and Planner certified from the UK, US and UAE based out of Dubai for the past 25 years. He also works in the PE/VC space and is a seasoned investment banker having worked with international banks and investment firms in the region. You may contact him at 1mgicapital@gmail.com

Blog by Geoffrey Muns

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