Global shares slammed by fears over new COVID variant, as Dow futures lose almost 900 points and South African rand hits 1-year low

Jennalynn Fung
The Pfizer-BioNTech COVID vaccine. Jennalynn Fung
  • Global equities tumbled Friday after a new variant of COVID-19 that could prove more transmissible emerged in South Africa.
  • The South African rand plunged to a one-year low against the dollar, while safe havens such as gold and the Swiss franc soared.
  • Dow Jones futures fell by almost 900 points, suggesting a steep drop at the start of trade in the holiday-shortened session later.

Global shares tumbled Friday after the emergence of a new COVID-19 variant sent investors fleeing riskier assets, driving the South African rand to a one-year low, and lifting gold and other safe-havens.

In European trading hours, Dow Jones futures fell almost 900 points for a 2.3% drop, while those on the Nasdaq 100 dropped 1.2%. S&P 500 futures were down 1.9% as of 11:00 a.m. ET, suggesting a weaker start to trading later in the day. US financial markets were closed Thursday for Thanksgiving Day and will trade in a shortened session Friday.

Measures of investor nervousness spiked. The VIX index of volatility jumped by more than 40%, its largest one-day rise since late January when the Reddit-led short-squeeze roiled Wall Street. The VDAX-New, the European equivalent, rose 35%, marking its biggest one-day rise since the start of the pandemic in March last year. 

South African scientists said Thursday they had detected small numbers of a new variant of COVID-19 that could prove more transmissible.

The variant — called B.1.1.529 — has a “very unusual constellation” of mutations, meaning the body’s immune response may not kick in and vaccines may be less effective against it, scientists told reporters at a news conference, according to Reuters.

The UK banned flights from six African countries and the EU is considering an “emergency brake” flight ban on southern African countries, in response. Europe was already a focus of concern as COVID-19 cases surged, leading to lockdowns and restrictions in Austria, Italy and other countries. Earlier this week, the World Health Organization warned the coronavirus could claim another 700,000 victims by March. The WHO will hold a special meeting Friday to discuss the new situation.

With alarm bells sounding over the impact to the economy from another highly contagious variant, investors flocked to safe-haven assets. The Swiss franc jumped by the most against the dollar since the onset of the pandemic, up 1.2% on the day, while gold rose 1.5% to $US1,810 ($AU2,520) an ounce, breaking a five-day losing streak.

“A new and potentially dangerous COVID variant has prompted a wave of risk aversion across markets,” strategists at online broker IG said in a daily note. 

“Heavy losses are expected across indices, although tech stocks have remained less affected, at least so far,” they added. 

The South African rand fell 1.5% to its lowest against the dollar in a year, while yields on benchmark 10-year South African government bonds shot up by 16 basis points to 9.89%, the highest since May 2020. South African bonds are less liquid and more volatile than US Treasurys, but yields were set for their biggest one-week rise in nine months.

Asian stocks took a beating overnight, with Hong Kong’s Hang Seng closing down 2.7%, Tokyo’s Nikkei falling 2.5%, and the Shanghai Composite falling 0.6%. 

“At this stage very little is known. Mutations are often less severe, so we shouldn’t jump to conclusions but there is clearly a lot of concern about this one,” Deutsche Bank strategist Jim Reid said in an early note.

“Suffice to say at this stage no one in markets will have any idea which way this will go,” he said.

European stocks traded in a sea of red, with the Stoxx 50 dropping 2.5%, the FTSE 100 in London down 2.7%, and Frankfurt’s DAX falling 2.6%.