A day after Thanksgiving there was not much to be thankful for. World stock markets, oil, and risky assets were hit hard by the revelation of a new Covid-19 variant in South Africa which reportedly carries an “extremely high number” of mutations. The news triggered a wave of selling of risk assets in both emerging and developed markets which introduced a ban on flights from southern African countries. Investors already were more cautious as some European countries already tightened Covid-19 related measures so here we go again. Was the stock market’s reaction to the “new Covid variant” reasonable or excessive? Some analysts say the behavior was “irrational;” others say the market reacted naturally to uncertainty. Even after the global selloff, U.S. stock markets remain in positive territory for the year. Scary?
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Canada’s stocks fell broadly.
The benchmark equity index returned -1.99% this and had its worst day in more than a year Friday. The S&P/TSX composite was dragged down by a drop in energy stocks after crude oil prices tanked as much as 13% on worries about the outlook for oil demand. Airlines and other travel-related stocks also took a beating. Air Canada was among those hardest hit, with its share price falling almost 9% as Canada announced travel restrictions from southern Africa. Healthcare, information technology, industrials, materials and financials shares tumbled as well.
U.S. equities dropped sharply for the holiday-interrupted week.
Market mayhem welcomed investors back from the Thanksgiving holiday with the Dow Jones Industrial Average dropping 2.53% on Friday, for its worst day of the year, closing at 34,899.34. The Cboe Volatility Index, often referred to as Wall Street’s “fear gauge,” rose to 28.62, its highest level in two months. For the week, the S&P 500 and the Dow plunged by 2% and 2.2% respectively while the Nasdaq plummeted by 3.5%. Lighter-than-expected trading volume may have exacerbated the steep drop on Wall Street, as some traders remained away from their desks on Friday, a shortened trading day with U.S. markets closing at 1 p.m. ET. A lack of major U.S. economic data may also have kept traders on the sidelines. In other news, the White House eventually chose to renew Jerome Powell’s mandate as Federal Reserve chairman and nominated Lael Brainard to be the vice chair of the Fed’s Board of Governors. Joe Biden’s decision to stick with Powell reinforced expectations of a rate hike in 2022.
In Brazil stocks finished the week down 1%.
The Bovespa closed down 3.39% on Friday with only 2 index stocks rising. In one day, Brazil’s benchmark index lost everything it had accumulated over 3 sessions. It also had its second worst closing of the year and ended the trading session with its largest daily drop in over a month. On the macro front, Brazil’s inflation (IPCA-15) for the first 15 days of November stood at 10.73% y-o-y, above the 10.34% registered in the immediately previous 12 months, but decelerated compared to the previous month. Brazil officially announced that it decided to close “air borders” with six southern African countries starting Monday (Nov. 29).
Chilean assets bucked the global trend. The IPSA index soared by 5.07% this week. Chile held the first round of its presidential election Sunday. The leading candidates came from the left and the far right. Far-right candidate José Antonio Kast will face left-wing former student leader Gabriel Boric in the run-off on Dec. 19. Whoever wins will likely have to move to the center, sources told Latin Finance.
Japanese equities were lower this shortened week.
Japan’s stock markets were closed on Tuesday (Nov. 23). The Nikkei 225 Index tanked by 3.34% over the week and plunged 2.5% on Friday closing below 29,000 for the first time in about a month while the safe-haven yen rallied. Japanese conglomerate Softbank Group lost 5.2% on Friday on a Bloomberg report that Beijing has asked Chinese ride-hailing service Didi to delist from the United States due to concerns about data security. Softbank’s Vision Fund is a major shareholder in the Didi with a stake of over 20%. On the economic front, Japan’s November composite PMI rose to 52.5, a 37-month high, from 50.7 in October, buoyed by loosening coronavirus restrictions. Manufacturing PMI advanced from 50.6 to 53.5, This was the 10th straight month of expansion in factory activity and the highest level since January 2018.
Chinese markets were weak.
Shanghai limited tourism activities and a nearby city to cut public transportation services. US-China tensions also weighed on sentiment. The U.S. government put some Chinese chipmakers on its trade blacklist, while the US commission calls for tighter controls on flows to Chinese markets. Concerns about Didi’s delisting added to an already bearish mood. Hong Kong’s Hang Seng posted its steepest loss since September 20 on Friday, on mounting concerns about the Chinese technology sector. China’s property sector remained under pressure while, rising economic pressures, raised expectations for supportive measures by Beijing.
REST OF ASIA
Seoul stocks extended losses for the fourth day on Friday.
The Bank of Korea raised raised interest rates for the second time in three months, amid rising inflation and mounting household debt. In India, the benchmarks fell to their lowest level in three months. The 30-share S&P BSE Sensex and the broader NSE Nifty index both lost over 2% on Friday. In other news, the Indian government is proposing to ban all cryptocurrencies and could help the country’s central bank create an official digital currency.
Australian markets suffered their third consecutive week of declines.
The ASX200 was off 1.58% for the week and marked Black Friday with the sharpest drop since October 1. All sectors were in the red and only 14 stocks finishing the day higher. Travel stocks tumbled after authorities warned the country may have to close its borders to travelers from South African nations. Energy was worst hit with stocks having their worst session since September 2020 as oil prices tumbled. Miners fell too. Better than expected October retail sales data failed to lift the mood. Australian retail turnover rose 4.9% in October m-o-m to A$31.1 billion ($22.31 billion), according to the Retail Trade figures, beating market consensus of 2.5% and after a 1.3% growth a month earlier. This was the second straight month of increase in retail trade and the strongest pace since November 2020, as the lifting of many stay-at-home restrictions unleashed a wave of pent-up shopping.
European stocks saw noticeable pressure.
Germany’s DAX ended the week more than 5% lower. The main indices of France, Italy, the Netherlands, and Spain also tumbled on fears that the economic recovery might be derailed by the imposition of various lockdown measures imposed across Europe.
Large-scale protests broke out in the Netherlands, Belgium, Austria, and Italy after they imposed stricter controls.
In economic news, the IHS Markit Euro Area Manufacturing PMI went up to 58.6 in November from 58.3 in October and above market forecasts of 57.3, flash estimates showed. Still, the latest reading remained the second-weakest seen over the past 17 months. German business confidence fell for a fifth successive month, the Ifo Institute said. Italian manufacturing and economic confidence figures for November came in better than expected. European Central Banks’s Isabel Schnabel said inflation risks were likely to last longer than expected.
Equities in the region suffered.
Athens led the losses with the Genereal Composite sinking 6.13% this week hurt by the global risk-off mood. In Hungary, the BUX index declined 0.99%. Hungary’s central bank raised its one-week deposit rate by 40 basis points to 2.9% as it fights rising inflation risks. The increase in the depo rate was the second in a week.
In Romania, the BET index bucked the trend, gaining 0.38% as Romania’s Parliament gave the vote of confidence to the new government led by Nicolae Ciuca. There were 318 votes in favour and 126 against. President Klaus Iohannis signed later on Thursday the decree for the appointment of the new government. “The political crisis is over, but the other crises aren’t, nor have the problems disappeared,” the head of state said. Meanwhile, 67% of Romanian business executives see the country’s economy worsening in the coming year, according to the latest Confidex survey carried out by Impetum Group.
REST OF EUROPE
In Russia, the MOEX returned -5.12% in line with markets across the globe.
The declines wiped out months of gains that had seen Russian stocks trading at all-time highs. Until recently Russian stock markets had been among investors’ top picks in emerging markets.
In the UK, London’s stock market saw its biggest selloff in over a year as the FTSE 100 index closed down 3.64% on Friday. This knocked around £72bn off the value of the blue-chip index, taking it to 7044 points, its lowest level in seven weeks. The premier index returned -2.49% this week. Shares in major airlines plummeted the pound also took a hammering, with sterling dropping below $1.33 for the first time this year as investors lost their appetite for risk. UK banned travel from South Africa and its neighbors.
In Switzerland, the SMI plunged -2.76% this week in line with markets across the globe.
In economic news, Switzerland’s Q3 GDP expanded more than expected, but slowed from Q2’s rate.
(Note: Trading days 21-25/11/2021 except Turkey)
Saudi Arabia’s stock market saw its biggest weekly loss in over a year
on Thursday and registered its fourth weekly loss in five.
In Turkey, stocks bucked the global trend with the BIST100 jumping 2.25%. While equities added to recent gains, the lira nosedived more than 15% on Tuesday after President Recep Tayyip Erdogan defended recent sharp rate cuts, and declared Turkey is fighting an “economic war of independence”.
The Turkish lira is by far the worst performing emerging market currency this year.
In Egypt, the blue-chip EGX 30, was up 0.82%. Egypt’s economy grew by 9.8% in the first quarter of the fiscal year 2021-22 that began in July, compared with 0.7% in the same period of last year, a cabinet statement quoted the planning minister as saying.
In South Africa, stocks as measured by the JSE Top40 index slumped 2.29% following the overseas markets’ collapse.
The drop comes as SA scientists this week discovered Omicron, “a concerning new variant of Covid-19”, setting off alarm bells around the world.
Britain, EU countries, Japan and some others introduced their travel restrictions Friday, some within hours of learning of the variant. SA government officials have criticised the travel ban which poses a threat to the nation’s tourism industry, which accounts for 7% of economic output. Meanwhile, SA’s government may announce more stringent lockdown measures in coming days, Bloomberg reported citing people familiar with the matter.
In other news, the Johannesburg Stock Exchange (JSE) announced the expansion of its secondary listings framework, now offering secondary listings from the Singapore Exchange (SGX).
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Kyriaki Balkoudi is a markets editor for World Markets Daily. She has a bachelor’s degree in Balkans Studies from Aristotle University of Thessaloniki, Greece and a master’s degree in International Politics from City University London, UK.
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