The Omicron variant is unlikely to rattle the recovery trade in EM tourism stocks. Although they took a beating in Friday's stock market sell-off, investors should position themselves for a buying opportunity.
The reasons for our optimism are as follows:
The world has acted swiftly to restrict travel from the Southern African countries where Omicron has been detected. Travel bans were imposed within hours of the detection of the strain, so although cases are being identified in several other countries, the rate of spread should be slowed.
The early indications are that Omicron is highly infectious. However, Bloomberg cites two South African health experts who state that the Omicron symptoms are mild.
Unlike in March 2020 when Covid first ravaged the markets, vaccination is now widespread.
Moderna's chief medical officer has stated that he fears that the Omicron variant may elude the present vaccines. However, a reformulated shot could be available in early 2022.
Friday's sell-off on the Omicron news was particularly severe on the recovery sectors – those that stand to gain from the mass reopening of travel, tourism and entertainment. We focus in this note on stocks in these three segments.
We have identified five stocks in emerging Asia that have excellent exposure to the travel and tourism recovery. They are distinguished by high operating leverage and the ratio of fixed costs to revenue is high. Any improvement in revenue should translate to even higher increases in operating profits.
Friday's sell-off presents an attractive entry point.