Analysis-Ready to pounce: Investors prepare for swings, opportunities as
Omicron variant spreads
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[November 30, 2021] By
Maiya Keidan
(Reuters) - The latest COVID-19 virus
variant has sparked a wild ride in markets.
Investors say the volatility probably isn't over yet, as they look for
selective opportunities to pounce on while protecting their portfolios
as the year-end nears.
The emergence of the Omicron variant saw the S&P 500 notch its worst
one-day percentage loss in nine months on Friday - only to rebound on
Monday as hopes grew that the variant might be milder than first feared.
While the World Health Organization (WHO) cautioned of a very high risk
of infection surges, U.S. President Joe Biden said America would not go
back to lockdowns.
Some investors saw opportunity in those swings.
"We have been endeavoring to take advantage of sharp sudden concerns
(such as Omicron) to add to positions where we believe the value more
than outweighs any new/incremental risk," Shawn Kravetz, founder of
Esplanade Capital, told Reuters by email. He is looking to swoop in if
markets take another dive.
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London-based hedge fund Westbeck Capital Management took advantage of
Friday’s sharp drop in oil to take a position in Brent crude. The fund
is waiting for more details on the Omicron variant to become clear
before making a bigger bet on a bounce in oil prices.
“We need to wait to see how this new variant develops. My gut feel is
that this is a big buying opportunity," said Jean-Louis Le Mee, the
firm's co-founder.
Still, not everyone is sanguine. Tim Pickering, chief investment officer
at Auspice Capital, a Canadian computer-driven commodities-focused fund,
reduced equity exposure on Friday.
"I think the biggest takeaway is the market is fragile and we should
expect volatility,” he said.
The Cboe Volatility Index, Wall Street's most widely followed fear
gauge, was down on Monday but still elevated from its range over the
last couple of months.
Steven Oh, head of credit at PineBridge Investments, said the Omicron
variant has introduced more risks to the downside on the heels of the
market’s sharp rally.
“If you have less confidence in the base case you may get a bit more
defensive in positioning,” he said.
While there may be hopes that the virus may not be severe as initially
thought, it shouldn't be dismissed, others warned.
Omicron "definitely has the potential to change the game globally," said
Grant Wilson, head of Asia Pacific at Exante Data, who said other
factors such as transmissibility and vaccine evasiveness needed to be
taken into account.
Indeed, the Financial Times on Tuesday quoted the chief executive of
Moderna as saying existing vaccines would be less effective at fighting
Omicron. S&P 500 e-mini futures were trading lower. [nL4N2SL1R3]
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A man wearing a protective face mask walks by 14 Wall Street in the
financial district of New York, U.S., November 19, 2020.
REUTERS/Shannon Stapleton/File Photo
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Wilson said large asset managers take time to make decisions and he expected a
lot of investment committee meetings would be scheduled where a key question
would be if the outlook for 2022 has changed.
How central banks respond to the threat is also key. U.S. Federal Reserve Chair
Jerome Powell on Monday warned that the new strain muddies the outlook.
"The question now is does the Omicron variant mean that the Federal Reserve
won’t hike rates next year?" said Troy Gayeski, chief market strategist for FS
Investments, who still sees rate hikes on the horizon and thinks there will be a
near-term peak to the market sometime between mid-January and April.
YEAR END NEARS
Despite the concerns, big Wall Street firms including BlackRock and Citi advised
clients to stay invested or buy on weakness.
BlackRock’s analysts on Monday said if vaccines prove effective “the strain only
delays the restart of economic activity," while Citi analysts said while "a
market sell-off seems logical" it "would buy into any dip."
Others have noted that stocks managed to move higher in the face of the Delta
variant this year. The S&P 500 is up about 10% since early May, when the WHO
designated the variant now known as Delta a "variant of concern." Graphic: The
U.S. stock market and the Delta variant,
https://fingfx.thomsonreuters.com/
gfx/mkt/
akvezmdaypr/Pasted%20image%201638209351790.png
However, a strong year in markets may mean some investors will look to protect
their profits as year-end nears, rather than assume more risk.
The average hedge fund, for example, ended October up 11.4% for the first 10
months of the year, according to data from Hedge Fund Research, compared to an
11.8% gain for all of 2020. The S&P is up 24% year-to-date.
![](http://archives.lincolndailynews.com/2021/Nov/30/images/ads/current/napa_sda_CHRISTMAS_2021.png)
Marc LoPresti, co-managing director of alternative investment management firm
The Strategic Funds, said hedge funds had already taken off some riskier
positions as the COVID-19 situation deteriorated last week in Europe to protect
gains going into year-end.
"They did the majority of the derisking, (but) they may do some more," LoPresti
said.
(Reporting by Maiya Keidan in Toronto; Additional reporting by Megan Davies and
Lewis Krasukopf in New York, Svea Herbst-Bayliss in Boston, Sujata Rao in
London; Writing by Ira Iosebashvili; Editing by Megan Davies and Leslie Adler)
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