Last week saw a bout of volatility in financial markets which culminated in losses of around 2-3% on Friday across some of the major global equity indexes. This was due to news of a discovery of a new COVID variant, discovered initially in Botswana, southern Africa. On 26th November the World Health Organisation (WHO) announced the new Covid variant, naming it Omicron, and classified it as a "variant of concern". Cases have already been detected in Australia and in some other European countries including the UK. Border restrictions in some countries have been reinstituted.
The classification of Omicron as a "variant of concern" by the WHO is important as it may indicate increased transmissibility or disease susceptibility. Also, that public health measures, including vaccines and therapeutics, may be less effective. However, it will likely be several weeks or even months until enough testing is performed to draw a more complete conclusion.
As we know, financial markets do not like uncertainty. So, in this intervening period we should expect continued volatility as markets struggle to attain the impact on growth and inflation of the new strain. Diversification is the key element in managing risks within a portfolio, and our portfolios are exposed to thousands of underlying investments, across the world. This ensures the impact of any one event is reduced. We also know that short term returns can be very volatile, so we focus on the longer-term outcomes which are the most important for building long term, sustainable wealth.
