Europe has moved to implement tougher restrictions in a bid to stop the spread of Omicron, sending equities lower triggered by investors’ “renewed nervousness”.
Global equities fell 1.5% last week and are down a further 1-2% today, as Omicron continues to disrupt the economic recovery, according to Rupert Thompson, chief investment officer at UK-based wealth manager Kingswood.
He said that, should US markets start to follow suit, “this will leave markets off around 4-5% from their mid-November high”.
The latest drop in investor optimism can be attributed to “renewed nervousness” about Omicron, and restrictions being introduced in much of Europe, with the Netherlands now being back in full lockdown, Thompson said.
Nevertheless, investment experts believe Omicron presents a temporary disruption to economic recovery, as booster jabs continue to evidence their effectiveness and anti-viral pills start to be rolled out to help reduce hospitalisations, he added.
Thompson said that economies have also now become much more adept at dealing with Covid-19 spikes over the past two years.
As far as global equities are concerned, central banks are now starting to unwind stimulus unleashed during the pandemic. This is likely to lead to further market volatility and limit the extent of future gains in equities on the back of further increases in corporate earnings.
AJ Bell investment director Russ Mould said: “After battling endless headwinds in recent weeks, markets have finally been knocked over as the rapid spread of Omicron finally reaches panic mode. Tighter restrictions across parts of Europe and fears that we could see a circuit breaker in the UK, have put a chill in the air for investors.”
Mould added: “Trends seen on the FTSE 100 on Monday [20 December] would suggest investors are taking a much broader view of the situation. This isn’t simply a UK issue, it’s potentially a global problem.
“The biggest detractors to the FTSE 100’s 1.7% decline in points terms were oil, gas and mining companies and pharmaceutical providers. The former reflects concerns that commodities demand will weaken if the global economy takes a hit. But the drop in drug companies is perplexing given that the pandemic has emphasised the importance of having medicines and treatments to deal with a wide variety of healthcare issues.”
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