TOKYO (BLOOMBERG) – Investors fled stocks and flocked to havens in global markets on Friday (Nov 26) amid growing concern over a coronavirus variant first discovered in South Africa.
United States treasuries and the Japanese yen gained while South Africa’s rand fell to its lowest in a year against the US dollar amid fears the variant may spread internationally, thwarting the recovery in the world’s economy.
Asian stocks and US equity futures fell amid the risk-off tone, with thin liquidity likely a factor given American markets were shut for Thanksgiving on Thursday.
A gauge of Asia-Pacific stocks slid to the lowest since the middle of last month, with travel shares among the biggest decliners. Singapore Airlines shares fell nine cents, or 1.7 per cent, to $5.16.
Japan’s Nikkei index sank 2.23 per cent, Australia’s S&P/ASX 200 index fell 0.9 per cent while South Korea’s Kospi index was down 0.48 per cent.
Just after opening, Hong Kong’s Hang Seng Index tumbled 0.96 per cent while the Shanghai Composite dropped 0.23 per cent.
The benchmark Straits Times Index was down 1.06 per cent as at 9.35am.
While researchers are yet to determine whether the B.1.1529 variant is more transmissible or lethal than previous ones, the authorities around the world have been quick to act. Britain and Israel temporarily banned flights from South Africa and five neighbouring countries as a precautionary measure. Hong Kong confirmed two cases of the new strain in travellers arriving in the city, the government said on Thursday evening.
The detection of the strain comes on top of concerns in markets about high inflation and the prospect of quicker exit from ultra-loose monetary settings. Global shares have climbed about 16 per cent this year, weathering a plethora of risks after investors poured almost US$900 billion (S$1.23 trillion) into equity exchange-traded and long-only funds this year – topping the combined total from the past 19 years.
“Traders are trimming risk positions because of concern over the new virus variant,” said Dr Alvin T. Tan, head of Asia foreign exchange strategy at RBC Capital Markets in Hong Kong. “The risk-off sentiment is magnified given the thin liquidity as it’s Asia morning plus the US holiday.”
IG Markets analyst Kyle Rodda said that the virus variant is “a scary headline”, so it may have caused a knee-jerk reaction.
He added that “North America off the desks means there’s a wall of buyers missing”, and thinner markets make for more pronounced moves.
United First Partners head of Asian Research Justin Tang said: “There is some risk off happening from Japan to Africa due to concerns around a new virus variant being found in South Africa, but the good thing is countries such as UK are acting fast to curtail its spread.”
He added: “Given that the world has gone through this before with Delta, there is already a playbook for such situations – even if the new variant overstays.”
The benchmark 10-year Treasury yield dropped as much as 5 basis points to 1.58 per cent as cash trading resumed following the holiday. The yen rose 0.4 per cent against the dollar, while the Swiss franc saw a 0.2 per cent rise, both outperforming their Group of 10 peers. The rand slid as much as 1.3 per cent to a one-year low of 16.1717 per dollar.
Meanwhile, Goldman Sachs Group economists said they expect the US Federal Reserve to tighten policy faster than previously anticipated, including doubling the pace at which it tapers bond purchases to US$30 billion a month from January. They see an interest-rate lift-off from near zero in June next year.
“The increased openness to accelerating the taper pace likely reflects both somewhat higher-than-expected inflation over the last two months and greater comfort among Fed officials that a faster pace would not shock financial markets,” the Goldman team, led by Dr Jan Hatzius, wrote in a note.
In China, the economy continued to slow this month, with car and homes sales dropping again as a housing market crisis dragged on, according to Bloomberg’s aggregate index of eight early indicators.