MARKET PERSPECTIVE

By J Mulraj

Dec 5-12, 2021

Impact on policy making, economy and markets

­­The world is alarmed at the speed at which the Omicron variant of the coronavirus is spreading. New cases are doubling every 3-4 days! At this rate Dr. Campbell expects that new coronavirus cases will hit 1m/day in UK by end Dec and 2 m./day in USA by end Jan 22. India too, along with the rest of the world, will be swamped with new cases.

So it Omicron appears to be the big bad wolf.

But, with luck, it may actually be a sheep in wolf’s clothing. A BBC report, today, states that although Omicron is far more transmissible than previous caronaviruses, it is far less dangerous. And, because it is more transmissible, it is actually driving out the more dangerous Delta variant! Omicron in South Africa, where it was first discovered, is often over in a few days, and usually without need of hospitalisation or oxygenation.

This may not be true for all countries, depending on their demographic profiles. South Africa is a younger country than, e.g. the UK, so it may not replicate the experience. But, with luck, the omicron variant can drive out the Delta variant, and provide herd immunity. It appears to have done so in South Africa where it is, by far, the dominant strain.

This has policy implications.

Should this experience, of fewer patients needing hospitals or critical care (oxygen), be true for other countries, why, it might be considered prudent to allow this variant to spread faster, and so provide herd immunity, before it mutates, once again, and becomes more virulent! Which means it may be an idea to consider reducing the severity of lockdowns.

The task of policy makers is unenviable. They get damned if they do and damned if they don’t. So they err on the side of caution. It is, for them, safer to order strict lock downs and travel restrictions than to risk getting it wrong and resulting in thousands of deaths. They would then be criticised for it; hindsight is always 20:20. As a wise guy said, if God wanted mankind to have the benefit of hindsight, He would place the human eye on the rear!

So what is expected to happen is a worldwide imposition of lock downs and travel restrictions. These, indubitably, will impact world trade, industrial production and GDP growth, negatively. Hence would result in a dip in stock markets.

When, and if, the chart of new omicron cases  starts dropping, as it is expected to, as sharply as it rose, the stock markets begin climbing.

The dip, should it come, may be a buying opportunity.

As worrying is the geopolitical situation in various areas, which, combined with the future of modern warfare is very worrying. Artificial Intelligence (AI) has made modern warfare far more dangerous. One example, explained in the video for which the link has been provided above, is the use of Loitering Drones, aka kamikaze drones. In fact this was used successfully in the recent war between Armenia and Azerbaijan over a province called Ngorno-Karabakh. The war was won by Azerbaijan, which used kamikaze drones. These are drones that ‘loiter’, or hover over, enemy territory, until it finds a target, which it then attacks in a destsructive, suicide mission.

Modern weaponry is getting increasingly technologically driven, and the use of AI in it can result in decreasing level of human intervention. In other words, we may reach a point in time when machines take over decisions, a frightening prospect.

With such dangers, the situations in Ukraine (Nato/USA versus Russia), Taiwan (China versus US/Japan/Australia etc.) and Middle East (Israel versus Iran) are fraught with risks, ones that cannot be evaluated.

Last week the sensex fell 1775 points to close at 57011.

It’s likely that the fast spread of omicron would lead Governments to clamp down further, imposing travel and lockdown restrictions. China has been the strictest in this (half a million Chinese are in quarantine), despite which the omicron variant has hit its shores. China’s factory output has also been hit by severe power shortages, after it decided to restrict use of polluting coal, in order to have clean air over Beijing prior to the Feb Winter Olympic games. Besides, China’s realty sector, accounting for 29% of its GDP, is seeing a degrowth following the collapse of Evergrande, now in technical default by Fitch, and problems at other firms.

Given this, foreign investors are attracted to India, where the story seems better. A Bloomberg poll estimates that India’s GDP growth will hit 9.4% this year, which is significantly higher than China’s estimate. India’s direct tax collections are up 40%, till mid December, confirming the better growth.

It appears, therefore, that investors may opt to await a possible dip caused by stricter travel and quarantine restrictions imposed by Governments, as Omicron spreads, which it will, and then to buy into the dip.

With some luck, Omicron might well turn out to be a sheep in wolf’s clothing.

Picture Source:   https://www.etsy.com/uk/listing/20673091/sheep-in-wolfs-clothing-8-x-10-signed