Strategy Note /

Omicron Covid in emerging markets

  • Covid precedent: sell-off temporary, tech outperforms at first, commodities recover before manufacturing, tourism lags

  • Differences today (Omicron) vs Delta in Q1 2021: 1) higher vaccination and prior infection, 2) less space for stimulus

  • We chart vaccination, prior infection, lockdowns, real interest rates, fiscal deficits across EM and key DM comparables

Omicron Covid in emerging markets
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
28 November 2021
Published byTellimer Research

The new Covid variant, "Omicron", has sparked concern over how fast it might be transmitted, the protection from vaccines already administered as well as from prior infection, and the re-imposition of lockdowns and travel restrictions.

Brent crude oil price dropped nearly 12%, copper price dropped 3.9%, the S&P dropped 2.3%, the US 10-year bond yield dropped from 1.63% to 1.47%, and the MSCI EM index dropped 2.5% on 26 November.

The behaviour of markets to the initial Covid outbreak (globally) and to the emergence of the Delta variant (eg in India) suggests any sell-off is temporary.

However, should the Omicron outbreak proliferate, a repeat of this is contingent upon the US maintaining an easy monetary policy for longer than expected prior to Omicron.

This is a more ambitious assumption given the political sensitivity of higher inflation for the Biden administration in advance of the November 2022 mid-term elections.

The worst scenario for EM is the prevalence of Omicron everywhere globally except for the US, but this is highly unlikely given its highly contagious nature.

Equity markets playbook of previous Covid waves

The precedents of the last 18 months or so are the following:

  • Tech companies whose products are adopted more rapidly in a lockdown environment and whose cashflows are longer-dated (ie whose valuation is more sensitive to changes in interest rate expectations) perform best initially.

  • Thereafter, demand for domestic consumption and commodities pick up first (eg oil, copper, and other metals exporters in EM such as Russia, Saudi, South Africa, and Brazil in large EM and Chile and Peru in small EM).

  • Followed by soft commodity exporters (eg Brazil in large EM and Indonesia and Malaysia in small EM) and manufacturing (eg Mexico, Vietnam and Bangladesh in small EM).

  • With tourism plays (eg Thailand in large EM and Philippines, Dubai, Mauritius, Georgia, Croatia and Iceland in small EM) lagging behind all other segments.

Compared to earlier Covid waves, the Chinese portion of the tech universe has been damaged by the local regulatory crackdown, there is less doubt about the willingness of OPEC+ to limit supply in order to preserve price, and the election cycles in Chile and Peru have or are close to running their course.

Where Covid – whether in its original mutation, Delta, or Omicron – has little relative bearing is markets where economic policy lacks credibility (eg Argentina, Nigeria, Turkey, Sri Lanka, and, to a degree, Romania).

Here we go again, but from a different starting point

Compared to when the Delta variant surfaced early this year, the world, including large parts of EM ex-Africa, are much more vaccinated, have higher prior infection, and have seen more of the most vulnerable segments of society perish.

This might imply less sensitivity in terms of healthcare impact, assuming that existing vaccines mitigate the effects of Omicron.

Covid vaccination and infection status in emerging markets

However, the starting point at the outset of Omicron is almost universally easing lockdown and travel restrictions. These likely go into reverse for a period of time, which is why markets have sold off so sharply. As protests in Europe demonstrate though, the more youthful segment of the population is not likely to accept another round of restrictions so readily.

Covid lockdowns scaled back in the last six months in EM

Furthermore, the capacity for policy stimulus response is generally lower, because of higher inflation and ongoing efforts to rein in fiscal budgets. And it is not clear that remittances can continue to surprise on the upside and provide counter-cyclical ballast.

Real interest rates in emerging markets: few have the capacity to ease monetary policy comfortably

Fiscal balances in emerging markets: few have the capacity to ease fiscal policy comfortably

Related reading and data


Pfizer's Covid pill speeds up tourism recovery in emerging markets, November 2021

Covid in emerging markets: Where's already infected, vaccinated and re-opening, September 2021

If inflation persists which emerging markets are best prepared?, September 2021

Remittances forecast raised by World Bank but there are downside risks, November 2021

Death by Covid-19 or starvation: Your Hobbesian Hobson’s choice in poorer EM, April 2020


The Tellimer Emerging Markets Investability Matrix, available to subscribers, contains over 160 market, economic, ESG, political metrics across over 50 countries – this includes 5 metrics on Covid infection, vaccination, and lockdowns.