Omicron, inflation top market concerns

MANILA, Philippines — Much like the rest of Asian bourses, jitters over the Omicron variant spooked the local stock market last week, driving a massive selloff.

But as investors digested the news on the discovery of the new COVID variant, bargain hunters took over and lifted the market above the 7,000 territory again.

The Philippine Stock Exchange index (PSEi) plunged by as much as 350 points before slightly recovering, ending lower by 233 points or 3.07 percent week-on-week.

“The Omicron variant sent waves of panic across the globe and lessons learned from the past two years led to quick re-implementation of travel restrictions from countries with and without confirmed cases,” stock trading portal 2TradeAsia said.

It noted that capital markets took a hit from the risk–off that ensued, as economic reopening efforts are once again threatened, similar to how the Delta variant drove a shift in strategies: from cyclical, value stocks to defensive, COVID-beneficiaries.

The behavior of market investors will be influenced by the impact of Omicron, moving forward, particularly if this would translate to another lockdown, it added.

“A repeat of the April and August’s implementation of stricter lockdowns will likely trigger bigger investor unloading but little data is known from Omicron so far that anticipating policy changes seems to be speculation at best,” 2TradeAsia said.

Thus, at this point, it said market sentiment would glide with developments especially if the country’s logs an Omicron case of its own.

“Fear of the unknown is real even–and especially in the capital markets and little-known information about the Omicron variant and whether it is worse than its predecessors is calling even greater caution from investors. In that case, lightening highly risk-on positions and preparing a cash buffer may be the prudent portfolio manager’s go-to,” 2TradeAsia said.

Outside the COVID-19 variant, macroeconomic indicators will also influence market behavior this week.

“These numbers will round up estimates for the year and set up expectations for 2022. For instance, the inflation trend in November will enable better visibility for December-January prices, particularly in seasonally sensitive baskets such as food and transport,” 2TradeAsia said.

“But with inflation largely driven by supply-side factors, we will need more than monetary measures. We need to keep the local food supply stable to ease food prices. We could also use some additional stimulus, but we’re already facing constraints. It’s good to know that deliberations for next year’s budget are already moving.”

Inflation remains elevated, averaging 4.5 percent from January to October, which is still above the government’s three to four percent target.