Week ending 26th November 2021.

This week’s positive economic data announcements were ignored thanks to the emergence of the new coronavirus variant – and unfortunately, global equity markets had a typical knee-jerk response: a fast and violent sell-off.

Given the fact we don’t yet know if this new variant is going to put the world back into lockdown and damage the economy, or if it is simply another mutation that we will soon forget about (virus mutations are normal and this one may not necessarily make coronavirus any more dangerous), this week’s equity market falls appears to be a predictable ‘panic first and ask questions later’ reaction.

Although the scars from last year’s lockdowns (which effectively meant the global economy hit a brick wall and ground to a halt) are still fresh, we believe this week’s equity market declines have been exaggerated by the fact that many market participants are currently away due to yesterday’s (Thursday 25 November 2021) US Thanksgiving holiday.

Additionally, and while we don’t want to sound blasé (especially because the human cost of this virus is upsetting), we have seen this playbook before: equity markets overreact by assuming the worst, only to recover quickly when the worse-case scenario doesn’t materialise.

Whilst we believe that a repeat of last year’s unprecedented lockdowns and containment measures appears unlikely at this juncture, it would be irresponsible of us to say that this week’s sell-off has run its course and that equity markets will quickly recover.

However, as we have previously said, history has shown us time and again that global equity markets can deal with any eventuality, but hates periods of uncertainty – and this new variant has caused widespread concern and panic despite the fact we have very little actual information about it.

As such while the current elevated equity market volatility will remain with us over the coming weeks, it is very important to resist the urge for any knee-jerk reactions and maintain a long-term perspective as, in time, this week’s sell-off may simply turn out to be a Black Friday sale for shares in good quality companies.

The Investment Management Team