Covid’s clinging on but this isn’t ‘rinse and repeat’

Covid’s clinging on but this isn’t ‘rinse and repeat’
BA.2 variant is a thorn in the recovery’s side.
Dan Lane
March 28, 2022

We’re not out of the woods yet.

Not long after predicting “a long period of tranquillity” for Europe, the World Health Organisation (WHO) has warned the newest Covid strain could be yet another hurdle to the global recovery.

Aiding the rapid spread of BA.2 (a highly transmissible Omicron variant) is the continent-wide easing of restrictions. Infections have been on the rise over the past two months in at least 18 European nations, according to the WHO.

Countries moving to a policy of living with Covid rather than outright spread prevention might have naturally provoked a rise in cases. It doesn’t help that BA.2 is around 30% more infectious than the first Covid strain and just as likely to result in hospitalisation, according to the UK Health Security Agency.

UK small cap winners a sign of waning Covid interest?

The UK small cap market’s initial reaction today was to push clinical diagnostics company Novacyt higher. The firm’s focus on Covid testing kits made it a huge pandemic beneficiary early on and, with a new test approved in the UK last month, investors saw reason to give it a boost this morning.

The thing is, Covid bellwether small caps like Novacyt and antiviral treatment developer Synairgen are getting less and less attention with each Covid update.

The shock and awe has worn off and, save for the odd ad-hoc bump, their moment in the sun might have been and gone.

On a much grander scale, investors may be wondering if a similar flight to lockdown winners will happen across the pond if BA.2 takes hold.

Will BA.2 boost US tech stocks?

While the likes of Denmark and the Netherlands are past their recent spikes, a fairly slow vaccination rollout in older US cohorts could mean the strain spreads quicker in the coming weeks.

Only 29% of eligible US citizens have got a booster, according to the Centers for Disease Control and Prevention. That’s far behind most Western nations but it’s not a definitive signal that the country will be plunged into lockdown or that there will be a resurgence in the stocks that benefitting from the depths of the pandemic.

As with the UK small cap healthcare stocks, the lion’s share of the pandemic benefits are behind the US work-from-home companies. Whereas firms scrambled to ship laptops and standing desks out to their employees the first-time round, those transactions are in the bag now.

Having gone through lockdown multiple times, we probably have what we need in the form of streaming services, tech and, crucially, the mindset that this won’t be forever.

It’s time for us to look ahead, the market is

It’s the sunk cost of all these factors that mean a huge market rally in these stocks is fairly unlikely. Instead, investors are much more likely to be looking beyond Covid and assessing the companies standing on their own two feet after a tumultuous few years.

There may yet be drama ahead and where fear pops up the pandemic winners could attract some nervous money in the short term. But, with fewer reasons to prop up revenues in those firms now, that effect will wane over time.

It means that if investors haven’t done so by now, they need to focus on the strong, reliable firms producing consistent revenues and growing their businesses. We might have got through the past few years backing a few companies that rocketed during an historical event but even the market’s showing us that’s old news now. 

Don’t get caught waiting for the next big thing. Not every company will have the stage set for them to shoot up the page and it’s a much better use of our time being the tortoise than the hare.

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