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Global stock markets crash as new COVID variant spooks investors

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LONDON, ENGLAND - DECEMBER 27: Share price information is displayed on screens at the London Stock Exchange offices after reopening following the Christmas holiday on December 27, 2018 in London, England. The FTSE 100 hit a fresh two-year low today despite stock markets around the world recording significant gains by the end of Wednesday.  (Photo by Jack Taylor/Getty Images)
The FTSE fell 3.4% after opening. Photo: Getty Images

Stock markets nosedived across the globe on Friday, heading for their largest weekly drop in almost two months, as a new coronavirus variant sparked concerns.

In Europe, the FTSE 100 (^FTSE) closed 3.6% lower, suffering its worst day this year, with only a handful of constituents in the green, while the CAC (^FCHI) tumbled 4.6% in Paris, and the Frankfurt DAX (^GDAXI) was 4% lower.

It comes as a new and more transmissible variant of COVID-19 was identified in South Africa, and has also been detected in Hong Kong and now Belgium.

The B.1.1529 strain has been reported to contain up to 30 identified mutations, prompting officials from the World Health Organization (WHO) to call an emergency meeting to discuss what it means for vaccine efficacy as well as other treatments.

The UK government has already implemented flight bans from six African countries because of concerns on infection rates, with the EU set to follow suit.

“For the moment it is understood that the number of cases is small, but due to the thin liquidity levels in Asia trading as a consequence of the US holiday the reaction does appear to be outsized, with a surge into bonds, sending yields plunging, and gold higher,” Michael Hewson, of CMC Markets, said.

Rising infections have already been plaguing Europe in recent weeks, with Germany suffering from a resurgence of the virus, Italy announcing tighter restrictions, as well as the Czech Republic and Portugal in the last couple of days.

This has caused the euro to post its third successive weekly decline, trading back at levels last seen in the summer of 2020. Travel, leisure, hospitality, oil and financial stocks took the biggest beating on Friday.

Read more: Pound and euro suffer against dollar as US Fed looks to faster tapering

While safe haven assets such as bonds and the yen rallied, the S&P 500 (^GSPC) dipped 2.1% and the tech-heavy Nasdaq (^IXIC) fell 2% at the time of the European close. The Dow Jones (^DJI) tumbled 2.8% lower.

Wall Street’s VIX index, which measures expectations of volatility in US stocks over the next month, also surged. 

The index, dubbed the "fear gauge", leapt 38.3% to 25.7, its biggest move since 27 January. Meanwhile cryptocurrencies tumbled as investors ditch riskier assets.

Richard Hunter, head of markets at Interactive Investor, said: “The absence of a lead from Wall Street, closed for the Thanksgiving holiday, left investors to ponder the latest strain of the coronavirus variant which in turn has led to a rather black Friday."

Asian stocks plunged overnight, with the Nikkei (^N225) closing 2.5% lower in Japan while the Hang Seng (^HSI) fell 2.6% in Hong Kong, and the Shanghai Composite (000001.SS) dipped 0.6%. 

South Africa's rand fell 1% in early trade to its lowest level in a year, while the risk-sensitive Australian and New Zealand dollars dropped to three-month lows. Brent Crude futures (BZ=F) also plummeted 4.8% to below $80 (£60) a barrel on the back of the news.

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