Marko Kolanovic: Markets Shouldn’t Fear Delta Variant

Don’t spend too much time fretting over the COVID “Delta” variant.

Or, actually, do spend a little time fretting over it, if “fretting” means exercising common sense in how you approach daily life in places where the variant is prevalent. That goes double if you’re not vaccinated.

But in the market context, it may not be worth obsessing over. That’s according to JPMorgan’s Marko Kolanovic, who on Wednesday compared investor fears around the Delta variant to previous instances of market consternation over new strains.

“We analyzed the progression of new cases and fatalities in the top 15 countries most affected by the Delta variant over the past month,” he wrote. According to that analysis, cases declined in 10 out of 15 countries. “In 13 out of 15 countries, fatalities declined as the Delta variant increased [its] share of new infections,” Kolanovic said.

Obviously, vaccinations are a key consideration. Kolanovic wrote that in the UK, a roughly 14,000 increase in new cases wasn’t accompanied by a particularly harrowing rise in fatalities. That, he said, “is consistent with findings that vaccines effectively prevent worse outcomes in Delta variant infections.”

Russia sticks out (figure on the right, above). Kolanovic attributed that to a comparatively low vaccination rate and lower natural immunity. “Any COVID-19 variant would result in faster spread and bigger impact in Russia,” he suggested, calling the country “an outlier.”

The read-through, according to Kolanovic, is that as long as the vaccines are still effective, developed markets should be ok.

More to the point, JPMorgan doesn’t view the Delta variant as an impediment to the bank’s bullish take on the reflation trade.

“Note that oil, as the most COVID-19/lockdown–sensitive asset, was not affected by Delta variant fears,” Marko said, before reiterating the bank’s preference for being long reflation, cyclicals and value, while shedding growth and defensives.