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Global recovery set to ride out Omicron but asset managers in Hong Kong feel the pinch

The Covid-19 variant is unlikely to cause distress for investors banking on global recovery, but quarantine restrictions in Hong Kong are set to put the bite on any comeback.
Global recovery set to ride out Omicron but asset managers in Hong Kong feel the pinch

The rapidly spreading Omicron variant of Covid-19 appears to be causing little distress for investors in the overall picture of the global economic recovery, but may pose unique problems for Hong Kong in the short-term, analysts say.

“While the Omicron wave has led to an unprecedented spike in new cases across many countries, the economic fallout is likely to be limited,” Harmen Overdijk, global chief investment officer at Leo Wealth, Hong Kong told AsianInvestor.

Harmen Overdijk,
Leo Wealth

“The new variant is more contagious but significantly less lethal than previous ones. In South Africa, it blew through the population without triggering a major increase in mortality. The general tendency is for viral strains to become less lethal over time,” said Overdijk.

In addition to Omicron being less lethal, the threat is being further minimised by new antiviral drugs which are emerging in the market.

Overdijk points to Pfizer’s new drug, Paxlovid, which it claims cuts the risk of hospitalisation by almost 90% if taken within five days from the onset of symptoms.

“The surge in Covid-19 cases in December will undoubtedly slow economic growth temporarily. But consensus is building that the now-prevalent Omicron variant is mild and its rapid spread could help the developed world achieve “herd immunity” thanks to widespread vaccination and natural immunity. Emerging countries, however, may continue to struggle, especially China,” he said.

In the US and Europe, people are fed up with Covid-19 restrictions, with society largely at a turning point from which Covid-19 is treated as endemic going forward. This will mean that in large parts of the world, life will return to normal. This in itself will continue to support economic growth as there is still a lot of pent-up demand among households and companies, according to Overdijk.

“In other words, for a large part of the world, Covid-19 will be last year’s story. And while global growth has peaked and the pandemic remains a risk, growth should stay well above trend in the major economies in 2022, fueling further gains in corporate earnings and equity prices,” said Overdijk.

CHALLENGES IN HONG KONG

The spreading of the Omicron variant appears to have started the new year with the same old problems leaving some local investors in Hong Kong concerned about the economic fallout.

Martin W. Hennecke,
St.  James's Place

“In terms of the Hong Kong equity market, it’s important to understand that the challenging local Covid-19 environment may not necessarily imply overall market weakness in 2022 or beyond,” Martin W. Hennecke, head of Asia Investment Advisory and communications at St. James’s Place Wealth Management told AsianInvestor.

“There are two main reasons, firstly a significant proportion of Hong Kong equity listings are mainland Chinese companies, or companies with significant mainland, continental or global operations relative to actual Hong Kong exposure,” said Hennecke.

“Secondly, market valuations generally are not very demanding at this point in time after a very weak 2021. Accordingly, we wouldn’t advise passing it by when screening for global opportunities.”

With the uncertainties around the regulatory changes in China, poor market performance overall in 2021 and indeed the Covid-19 situation in Hong Kong, Hennecke strongly recommended global diversification of investments.

“Uncertainties for many local companies’ business operations, serve as a good reminder to investors to never be overconfident in, or overly rely on, any one particular market or sector,” he said.  

READ ALSO: Omicron travel restrictions set to cast a pall over Hong Kong's economy

PLANNING AND TALENT RETENTION

A new wave of restrictions on various social activities within Hong Kong and a further tightening of controls on international travel, were announced on January 5, which some investors believe may dampen economic growth.

The measures were initially instituted for two weeks but have now been extended to February 4.

As one Hong Kong-based multi-asset strategist told AsianInvestor, the real issue at the moment for Hong Kong firms is more on business development and the impact on its talent.

“Travelling restrictions have made it difficult to plan ahead for activities. We used to do quite a lot of roadshows with client and prospects, which effectively came to a halt over the last two years. What this means is that many of the leads and pipelines have dried up,” he said.

For many of the city's expatriate workers who went home over the Christmas holidays, “it’s just difficult for them to come back with the new quarantine requirements,” he said.

“The restrictions and uncertainty is pushing away talent,” he added. “This is going to exacerbate further in the next 12 months if the travel restrictions remain for the city. “

Additional reporting by Natalie Koh.

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