The View | As Omicron rattles stock markets, is the panic warranted?

Name: What do we know about the new coronavirus variant Omicron?
Uploaded: 2021-12-02T08:30:13.000Z
Duration: 2 min 28 s
Description: What do we know about the new coronavirus variant Omicron?

While medical experts say they don’t know enough yet about the new variant of concern, politicians, vaccine company bosses and economists haven’t shied away from airing their views

Markets and news stories tend to overreact to shock news, but investors should look carefully at the evidence

Reading Time:4 minutes

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A trader works at the New York stock exchange on November 29 as US President Joe Biden appears on a screen urging Americans to get vaccinated as he sought to quell concerns over the Omicron variant. Photo: AP

Richard Harris

Published: 4:30pm, 2 Dec 2021

“The brains of humans contain a mechanism designed to give priority to bad news,” says behavioural psychologist Daniel Kahneman. “‘You’ve got to prepare for the worst’: World responds to new variant’s arrival”, read a headline in The Washington Post. The New York Times pointed to “a ‘Frankenstein mix’ of mutations raises concerns”, while noting that “the variant may remain vulnerable to current vaccines”. A Post report had a strapline, citing an infectious disease expert, which said, “further flight bans may be necessary” and “the government should discourage travel”.

The global stock markets took the scaremongering to heart with falls on world markets on Friday. Europe lost 3.7 per cent, and Wall Street lost 2.3 per cent – tiny blips compared to the rises of 14 and 24 per cent respectively this year. Both markets somewhat recovered on Monday, indicating the scare was overblown, although the virus story lingered.

Therein lies an important lesson about narratives in finance. Don’t react on the first flush of breaking news about an old narrative. Markets and news stories tend to overreact to shock news; investors need to keep their nerve and look carefully at the evidence.

It will probably take a week or two for the boffins to figure out quite how bad this variant is. But the headlines weren’t going to wait. The initial summary of most medical experts was that we just don’t know enough yet. That didn’t stop politicians, chosen advisers, bosses of vaccine companies and economists from having a view – and it is in the interests of most of them for it to be bad.

A Sky News ticker read,“Adviser to South African government says too early to tell whether vaccines will work against the Omicron variant”. The line would make more sense with the word “not” between “will” and “work”. Why make the worst assumption on little evidence?

02:28

What do we know about the new coronavirus variant Omicron?

The fevered sentiment around anything Covid-19 makes it easy to spin the narrative into hot news. Surely the most sensible approach is for our experts to assume the status quo until we have hard evidence to the contrary. If the variant was really that bad, we would surely have at least some early indications, given how studied this virus is.

.css-1m2rp1p{color:#34b8b5;}The View | As Omicron rattles stock markets, is the panic warranted?

The View | As Omicron rattles stock markets, is the panic warranted?