Coronavirus could be elephant in the room ignored by strategists

People wearing masks pass a closed restaurant in Paris amidst the Covid-19 pandemic in France 06/05/2021
In a Bank of America survey this week, fund managers ranked Covid-19 as only the fifth highest causative risk (Image: REUTERS/Sarah Meyssonnier)

A new pandemic shock could catch traders and investment strategists off guard.

As countries of the Europe announce new restrictions that include full lockdown, research reports highlighting risks and opportunities for 2022 appear to completely ignore the coronavirus. The word “lockdown” is not even mentioned in forecasts for Europe next year released by Goldman Sachs and Morgan Stanley.

In survey of the Bank of America this week, fund managers ranked Covid-19 as only the fifth highest causative risk, with just 5% showing concern about the possible impact on markets. Inflation, interest rate hikes by central banks, stagnant Chinese growth and asset bubbles top the list.

In a 72-page 2022 outlook report released this week, UBS Global Wealth Management says its central scenario is that the current wave of the pandemic “does not escalate to the point where new lockdowns are needed”. The report was published a day before Austria’s restrictions and warnings that Germany may have to go down the same path.

European equity markets still signal optimism. While travel and leisure stocks tumbled sharply on the news, the benchmark Europe Stoxx 600 lost just 0.6 percent on Friday, a far cry from the market panic caused by last year’s lockdowns.

An October HSBC report detailing what could go wrong in 2022 may help explain the calmer reaction. A new wave of Covid doesn’t necessarily have to be bad news for markets, because “signs of overheating demand may fade, which would reduce concerns about stagflation and premature tightening of central banks,” wrote strategists led by Max Kettner.