'Red on the screen': How hard will Omicron hit New Zealand share market?

The new variant of Covid1-9 has already hit international markets. Photo / Getty Images

New Zealand investors are likely to see "red on the screen" when the share market opens to trading at 10am.

Mark Lister, head of private wealth research for Craigs Investment Partners, says while news first broke of the Omicron variant on Friday afternoon, developments over the weekend have since resulted in heavy losses in international markets.

Stocks sank yesterday, with the Dow Jones Industrial Average briefly falling more than 1000 points.

The S&P 500 suffered its worst day since February, dropping 106.84 points (or 2.3 per cent) to close at 4,594.62.

Oil prices plummeted 13 per cent to a two-month low of US$68.15 per barrel – the worst day for oil since April 27 2020.

Since its identification by scientists in South Africa, Omicron cases have been found in the UK, Germany, Italy, Belgium, Israel, and Hong Kong.

Investigations are also underway in Australia and the Netherlands to determine whether positive cases match the Omicron profile.

Lister describes this as a big wake-up call for developed countries who have been celebrating the success of their vaccine roll-outs.

"While we have been high-fiving ourselves about our vaccination rates, there are still developing countries around the globe that have vaccination rates as low as 10 per cent," Lister says.

Lister points out the pandemic is a global issue and as long as the virus is allowed to spread freely through developing countries, the risk will remain of new mutations.

Lister says he expects the New Zealand market to play catch-up with the international mood on Monday.

"There will be red on the screen," he says.

"Investors have had the whole weekend to follow the developments and there will be an impact as caution ramps up."

As has been the case in the past, Lister expects travel stocks and businesses dependent on travel to be hit the hardest by news this week.

He told the Herald he would be keeping a close eye on stocks like Air New Zealand, Auckland Airport, Serko and SkyCity on Monday morning.

Asked how severe he thought the impact might be, Lister noted the New Zealand share market had been far more cautious than our international counterparts over the past year.

While the US and European markets had risen more than 20 per cent on the back of vaccine optimism since the beginning of the year, the NZX had actually declined about 5 per cent he said.

This in turn means that impact won't be as severe in the local market, Lister says.

Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. Photo / Supplied

Lister puts this down to the fact there simply hasn't been as much optimism pumped into the market in the past year, but also because some of our biggest players aren't as sensitive to the economic impact of lockdowns and travel restrictions.

He points to the Spark, Chorus and electricity companies Mercury and Meridian as examples of businesses that should hold steady as the market digests the impact of the Omicron variant.

Fisher & Paykel Healthcare could, in fact, see an increase in investment in the coming days.

"Money will move to safer stocks during this period of uncertainty," he says.

In addition to putting their money toward safer stocks, Lister also anticipates investors backing tech stocks in the international market.

"This isn't so much a New Zealand theme, since we have very few tech stocks and they're only small, but in a US sense it'll be the likes of Microsoft, Salesforce etc that will be well supported," he says.

One positive that might come out of this for the New Zealand market is that the value of the kiwi is likely to fall (as it has over recent days).

"This gives our export sector a boost and makes it more competitive. So that is an important shock absorber for us, both in terms of the economy and for many exporting businesses, whether that be the dairy sector, or the likes of F&P Healthcare.

Longer-term, Lister says it is difficult to make a call on which way the market will go, but he doesn't believe this is going to derail the world's economic recovery.

"Markets tend to shoot first and ask questions later," he says.

"We'll get clarity on what this variant means in the coming weeks as scientists and vaccine makers find more about how significant this threat is.

"I'm still optimistic on a longer-term basis and this is simply an inevitable part of our 'two steps forward, one step back' process of learning to live with Covid."