Global stocks and oil prices tumbled on Friday as investors dashed for shelter in safe haven assets after a new coronavirus variant shook market sentiment.
A broad sell-off in European shares followed similar moves in Asian markets. Europe’s Stoxx 600 fell 3.1 per cent in early trade, with France’s CAC 40 index and Germany’s Dax 30 down by similar margins.
London’s FTSE 100 index dropped 3.2 per cent. In a sign of the market anxiety, shares in British Airways parent IAG dropped around 16 per cent in London, with jet engine maker Rolls-Royce off 12 per cent and oil major BP down 6 per cent.
“Things have escalated on the Covid front quite rapidly over the last 12 hours,” said Jim Reid, a strategist at Deutsche Bank. Yesterday, the new variant “was slowly starting to gather increasing attention but overnight it has begun to dominate markets,” he said.
The so-called B.1.1.529 Sars-Cov-2 variant, first identified in Botswana, is believed to be behind a surge in Covid cases in southern Africa over the past week and has alarmed global health officials because of its apparent ability to evade vaccines and spread more quickly than the Delta variant.
Israel has banned travellers from South Africa, and the World Health Organization will hold an emergency meeting on Friday to discuss the new variant, which has been described as the most concerning strain yet encountered by researchers.
Hong Kong’s benchmark Hang Seng index shed more than 2.5 per cent amid concerns that the new coronavirus strain could slow the global economic recovery and further isolate the Asian financial hub, which has one of the world’s most stringent quarantine systems. Two cases of the variant were confirmed in Hong Kong late on Thursday.
“I look at my screen today there’s hardly any green — it’s all red,” said Andy Maynard, a Hong Kong-based trader at investment bank China Renaissance. “It’s all on the tail of this Covid strain.”
Elsewhere in Asia, Tokyo’s benchmark Topix index fell 2 per cent on Friday after the UK banned direct flights from the six countries including South Africa until quarantine hotels were up and running.
Travel stocks were again among the hardest hit, with Japan Airlines down more than 6 per cent and Hong Kong’s flag carrier Cathay Pacific shedding 4 per cent on worries over increased international travel restrictions.
Futures contracts tracking Wall Street’s S&P 500 index were down 1.7 per cent in early European trading. US stocks will trade for fewer hours on Friday following the Thanksgiving holiday.
Government debt rallied as investors turned to assets traditionally seen as carrying lower risk. The yield on the benchmark US 10-year Treasury note fell 0.12 percentage points to 1.53 per cent on Friday. The yield on its German equivalent declined 0.07 percentage points to minus 0.32 per cent.
Olivier Marciot, cross asset investment manager at Unigestion, warned that given recent “complacency” in equity markets, news of a new coronavirus variant could prompt significant selling, with stocks that stood to benefit from economic growth or inflation especially vulnerable. “The usual safe havens like the US dollar and longer-dated Treasuries will be the place to hide”, said Marciot.
In currencies, the new travel restrictions sent the South African rand down as much as 1.7 per cent to about R16 against the dollar, marking the currency’s weakest level in more than a year as the country faced the prospect of spoiling this year’s tourist season. Meanwhile, the Japanese yen — which typically rises during times of growing market angst — gained more than 1 per cent against the dollar.
Other emerging markets currencies including the Mexican peso and Turkish lira slid about 1.4 per cent.
In commodities markets, concerns over disruption to global trade hit oil prices, with international benchmark Brent crude down 4.7 per cent at $78.34 a barrel. US marker West Texas Intermediate fell 4.6 per cent to $74.72.