EFG International : Understanding the threat of Omicron

In November 2021, as financial markets were concerned by the continuing rise in inflation worldwide and the risk that it would trigger an unexpectedly rapid monetary policy tightening, a new version of the Covid virus was detected, further deteriorating sentiment.

However, there are two main differences between the new Omicron version and previous variants of concern (VoC). First, there are ongoing vaccination campaigns across the world. While the version of the virus is new, it is likely that the vaccines will have some - full or partial - effectiveness against it. Although vaccine supply differs across countries, those with high vaccination rates will have some immunity to the virus which reduces the likelihood that a large share of the population develops severe symptoms. Second, there is now a series of treatments and medications that can help treat cases of Covid-19 without adding pressure to the health care system.

What do we know so far about Omicron?

According to medical studies, the new Covid-19 variant has over 50 genetic mutations compared to the original virus, making it potentially more transmissible and severe. In South Africa, where Omicron was first sequenced, the number of new Covid-19 cases has increased faster than previous variants (Figure 1). As a result, the World Health Organization swiftly moved to consider it a VoC. So far, the limited data available on Omicron means that the level of protection that current vaccines provide cannot be assessed. However, symptoms seem milder than in the Delta variant.

Figure 1. Omicron spreads faster than previous variants in South Africa

Source: Our World In Data and EFGAM.

Contradictory comments on the effectiveness of existing vaccines from Moderna¹ and Pfizer² has increased the public's uncertainty. However, according to Dr. Ugur Sahin, CEO of BioNTech, since 97% of Omicron sequences are identical to those of the original virus, the response of the immune system's T-cells should prove effective at controlling the severity of the new strain.³

Nonetheless, the rapid spread of Omicron, which is now present in almost 40 countries, led markets to fear a repeat of the 2020-2021 lockdowns, which triggered the downgrade of growth projections and delayed the return to normal life in most countries.

Preliminary studies in the US of the severity of Omicron are encouraging, with booster vaccines offering a "considerable degree of protection" according to Dr. Anthony Fauci, chief medical adviser to President Joe Biden.⁴ As in many European countries, the US implemented a series of measures to limit the spread of the new variant. Some cities quickly reintroduced requirements to wear masks in public areas and restrictions on travel, including strict quarantine rules when arriving from certain countries and additional testing requirements. According to the European Centre for Disease Prevention and Control, while border closures or travel bans would allow time to gather data on the novel variant, it advises countries to limit these measures given the potentially negative economic impact of travel-related restrictions.⁵

The initial advice from the World Health Organization is to extend the vaccination campaigns to countries with low vaccination rates. The rise of Omicron cases in South Africa, where it was first sequenced, has been linked to the country's low vaccination levels. As of early December 2021, only 24% of the population are fully vaccinated. Although this is above the average of African nations (7% of total population) it is much below the world average (43%).

Questions still unanswered

The spread of Omicron in countries with high vaccination rates remains under assessment. According to Our World In Data, estimates of the reproduction rate (Rt) of the virus in countries such as the UK, US and Germany show it has recently fallen close to 1 (Figure 2). This means that on average every person infected infects one other person, leading to a stable level of infections.⁶ Whether Omicron will overtake Delta as the predominant variant is still unclear.

Figure 2. Reproduction rate of Covid-19 in UK, US and Germany

Source: Our World In Data and EFGAM

There is also uncertainty over the difference in the mortality and degree of contagiousness of Omicron compared to Delta, particularly in populations with high vaccination rates. Take the UK which has over 80% of its population fully vaccinated and one third having already received a third dose as an example: by 7 December 2021, there have been over 330 cases of Omicron detected in the UK, but none of them have been admitted to hospital so far. This preliminary data is encouraging.

Additionally, GlaxoSmithKline, a pharmaceutical company, recently highlighted preliminary data suggesting one of its emergency-approved treatments for Covid-19, Sotrovimab, is effective against all 37 identified mutations in the spike protein, including those found in Omicron.⁷ While this is encouraging news, further evidence needs to be gathered to better understand the immunity of vaccines and drug treatments across the world.

Conclusions

The emergence of a new variant of Covid-19 is a cause for concern, particularly if its mutation can make it more transmissible or severe. Preliminary data has been encouraging regarding the effectiveness of existing vaccines and treatments, although more data is needed before we can reach a conclusion. The time it will take to assess this, and the uncertainty generated by these unknown factors has impacted markets in the recent weeks. Efforts from health authorities remain focused on extending vaccination campaigns, either by giving booster doses or increasing supply to countries with low vaccination rates. These have proved effective so far in reducing the likelihood of developing severe symptoms.

If Omicron becomes the predominant variant worldwide, due to its transmissibility, but its symptoms prove to be less severe than in Delta, its appearance could lead to a positive scenario in which the world learns to live alongside the threat of the virus, as it has done with the seasonal flu. Data in the coming weeks will be crucial to assess whether Omicron is a less severe but more contagious version of the virus, a conclusion that would support sentiment and financial markets.

¹http://go.pardot.com/e/931253/b9-b9c8-47a5-8e06-72e432e0838f/b2t4/17046427?h=XT6a5_kbKx8vP4JTU5mXRawKPJIg1pFEY_T2K7N0Rzw
²http://go.pardot.com/e/931253/o-hold-up-in-tests-vs-omicron-/b2t6/17046427?h=XT6a5_kbKx8vP4JTU5mXRawKPJIg1pFEY_T2K7N0Rzw
³http://go.pardot.com/e/931253/us-how-bad-is-it-likely-to-be-/b2t8/17046427?h=XT6a5_kbKx8vP4JTU5mXRawKPJIg1pFEY_T2K7N0Rzw
⁴http://go.pardot.com/e/931253/24-2160-40be-9c91-efc5381fca26/b2tb/17046427?h=XT6a5_kbKx8vP4JTU5mXRawKPJIg1pFEY_T2K7N0Rzw
⁵http://go.pardot.com/e/931253/iant-omicron-december-2021-pdf/b2td/17046427?h=XT6a5_kbKx8vP4JTU5mXRawKPJIg1pFEY_T2K7N0Rzw
⁶ The higher Rt is above 1, the more people one infected person infects and the faster the epidemic grows.
⁷http://go.pardot.com/e/931253/es-sotrovimab-retains-activity/b2tg/17046427?h=XT6a5_kbKx8vP4JTU5mXRawKPJIg1pFEY_T2K7N0Rzw