COVID- The long Goodbye…

Updated: Sep 1

The Delta variant- what is the impact on markets?

Asset manager “herd” –overweight OR underweight.

Like the short sharp jab of a vaccine needle we keep this month’s lead article short and sharp. We asked our Herd of research departments how they viewed the outlook for equities given that the first part of the COVID alphabet (alpha to gamma) seems to have been waved goodbye by the vaccine from the public worry list; yet, the delta variant hasn’t been blown away by scientists and the medical profession. The most common query or concern arising from our client base in the month of August revolved around confidence in markets sustaining their year-to-date form whilst the delta variant remains without a clear solution.

The background: August YTD results for the S&P at + 20%; the FTSE at +10%; Europe at + 16% would suggest to those from another planet that all was well on planet earth. Although emerging markets are largely negative- seemingly weighed down by a lower penetration of vaccines and other aspects of the rich v poor medical divide. With this money-making start to the year; with the knowledge that experienced investors have that markets do not like uncertainty; with the knowledge that the delta threat remains both deadly and unsolved; then client concern looks very natural. How concerned are the Herd asset managers?

For Phil Smeaton at VAM/Sanlam “For us and as we move through time, COVID is increasingly a rear-view risk, rather than a forward-looking one – so the grip that it has on equity markets is more muted than the risk posed by monetary policy and the valuation risk seen in some areas of the market, in our view. COVID has happened and by and large we are past it, even in the US with the Delta variant, the numbers are coming down, and if they follow the same trajectory that the UK followed, herd immunity and learning to live with the virus are the most likely outcomes. Ongoing disruptions may well keep happening but it is nothing systemic like it was, and with new, potentially more effective vaccines being made, even these disruptions could pass even in the face of Lambda* and any other as yet unknown variants.“ (* the recent variant detected in South Africa).

For Lorenzo La Posta at Momentum Asset Management “With the first wave of the COVID pandemic, we observed a negative correlation between equity markets and COVID-related news: cases up, equities down. However, this has become less evident with time. Today, vaccines are helping markets to look through the pandemic, shifting their attention to the future. Governments have been very supportive to those in need, allowing economies to reopen and recover where possible. Central banks are being not only accommodative, but also highly responsive to economic numbers and developments. Hence, markets are less sensitive to short-term news. So, we’d argue that the spread of the Delta variant is dangerous and could seriously damage the investment thesis. However, this is not the only nor the main risk out there.”

Finally, for Michael Bull at Quilters Cheviot, speaking on line at a Mondial Staff Meeting – his view reflected the above- that markets were more worried about inflation and interest rates rather than delta’s unsolved problems. Bull’s comments leaned more towards the discrepancy in market performance between the vaccine’s “have’s” and “have nots” (mature markets versus emerging markets) rather than delta creating market uncertainty. Instead of fear, Bull leaned towards a summer of little market activity “a quiet summer- until workers return to their desks”. If there are market dips, Bull is holding cash to use and buy equities evidencing a clear confidence in the asset class.

CONCLUSION: The great thing about Herd thought is that when they are aligned it provides a forceful statement, and when they are not aligned, it tells you what is important. On the current question of potential uncertainty created about the threat of an (as yet) uncontrolled delta- it seems that confidence remains in the sectors which have been driving economic growth since the fear and drama of March 2020. Message on equities: stay calm, stay invested.

For more details, or to contact Sean Kelleher CEO, Mondial Dubai LLC, please contact us at

+971 56 2228 535

clientservices@mondialdubai.com

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