WORDS ON WEALTH
By Martin Hesse
Despite ongoing worries about the transmissibility of the Omicron variant of the coronavirus, and all eyes on South Africa on whether it is more or less virulent than its predecessors, global financial markets, apart from a brief hiatus when the news of Omicron broke, seem strangely unaffected. (Caveat: this was the situation at the time of writing, on Wednesday, December 8.)
On Wednesday, December 8, Reuters reported that “a rebound in market sentiment continued in early European trading, with world shares set for their biggest two-day jump since November last year as investors became less concerned about the Omicron variant. World shares plunged at the end of last month (the MSCI World Index fell by about 8%) when the discovery of a new Covid-19 variant spooked investors. But sentiment has rebounded sharply this week in the absence of indications that the variant would derail the economic recovery.”
Here on the JSE, the Omicron “blip” was even less pronounced. On November 26, after the news of the variant broke, the FTSE/JSE All Share Index dropped 2.75%, from 70 554 to 68 614. From there it began climbing again, reaching record levels of over 72 000.
Reuters quoted Deutsche Bank strategist Jim Reid, in a note to clients, saying: "It is more the absence of bad news rather than any concrete good news helping to drive sentiment … Every day that passes without a wave of severe cases driven by Omicron is offering more hope that this won't be the curveball to throw the recovery off course."
In another Reuters report, researchers at Dutch multinational financial services group ING warned against over-optimism about the variant. “Good news relating to the severity of Omicron should be taken with a pinch of salt,” they said. “Faster transmission could offset the benefits of milder symptoms. More broadly, it is still early days, even if markets are starting to display Omicron fatigue.”
However, looking back at previous waves and previous variants, apart from the dramatic crash in March last year, there is no immediately noticeable correlation between what the markets have been doing – essentially going upwards – and the damage coronavirus has been doing to economies.
Back in August, Schroders strategist Tina Fong penned an article “Has Covid actually mattered to financial markets?”
“The Covid-19 pandemic has clearly affected our daily lives and the well-being of the global economy. But the impact on financial markets has been less straightforward,” Fong wrote.
“Firstly, equities appear to have looked through the economic consequences of the virus. Last year, the Covid-19 crisis triggered one of the deepest recessions in history, which saw global growth contract by 3.6% year-on-year. After the initial sell-off in stock markets, global equities – as measured by the MSCI World index – went on to deliver a 15% return in 2020.
Markets were certainly lifted by the sheer size of fiscal and monetary stimulus provided by authorities around the world.
“So, as long as policy support was plentiful, equities were complacent about the negative economic impacts from Covid-19. But looking deeper under the surface, the virus has played an important part in the fortunes of certain sectors.
“Over the past decade, with the rise of the technology sector, global growth stocks (shares of young, fast-growing companies) have outperformed ... On the opposite side of the spectrum, the more economically sensitive sectors, such as energy and financials, suffered losses. In particular, the energy complex had the worst performance year since the Global Financial Crisis,” Fong wrote.
INEQUALITY REPORT
One of the lasting effects of the Global Financial Crisis 13 years ago was the increased concentration of wealth in the hands of a rich minority. The pandemic has exacerbated this inequality, according to the World Inequality Report 2022, released last week.
But quickly, here’s a meme doing the rounds on Facebook: “It’s 80 000BC. You are immortal. The world is still frozen in an ice age. You decide to save US$10 000 a day, never spending a cent. 82 021 years later it’s 2021. You STILL don’t have as much money as Elon Musk.”
The calculation was correct (it’s $299 billion) until a week or so ago. Last time I looked, Musk was worth $274 billion, having seen a drop in his Tesla shares. To put that amount into perspective, it’s over R4 trillion, roughly South Africa’s annual GDP.
According to the inequality report, which compares countries using the purchasing power parity of their currencies (in other words, what money in a particular currency can buy in its home country as opposed to its value in another currency), the richest 10% of the global population currently earn 52% of global income, whereas the poorest 50% earn 8.5%. On average, an individual in the top 10% earns $122 100 a year, whereas an individual from the poorest half earns $3 920 a year. Global wealth inequality is even more pronounced than income inequality. The poorest half of the global population owns just 2% of the world’s wealth. In contrast, the richest 10% of the global population own 76% of all wealth.
“The Covid crisis has exacerbated inequalities between the very wealthy and the rest of the population,” lead author Lucas Chancel said, noting that rich economies used massive fiscal support to mitigate the sharp rises in poverty seen elsewhere.
PERSONAL FINANCE