HONG KONG – Asian equities extended losses today following another rough day for global markets as the fast-spreading Covid Delta variant fuels concerns over the expected economic recovery.
Investors have been rattled in recent weeks by data showing the highly transmissible virus surging across the world, forcing some governments to reimpose containment measures.
Even countries with elevated vaccination rates have seen a big increase in new cases, though observers point out that hospitalisations and deaths are being kept down thanks to the jabs.
The selling has also been blamed on other factors including lingering worries about possible central bank policy tightening as the economy recovers, profit-taking with markets sitting around record or multi-year highs, and investors jockeying as the corporate earnings season begins.
Bubbling geopolitical tensions were also an influence after the United States accused Beijing of carrying out a massive hack of Microsoft and charged four Chinese nationals, while rallying allies in a rare joint condemnation of "malicious" cyber activity.
China has denied the claims as "totally groundless and irresponsible".
"What is likely concerning markets now is that there is also a surge in infections occurring in developed markets with high levels of vaccination," said National Australia Bank's Tapas Strickland.
This showed "that fully vaccinated people while being protected from severe cases and hospitalisation, can still transmit the virus".
"Virus restrictions may need to be in place for longer (or even re-introduced) until vaccination rates lift further and full vaccination is available to everyone who wants it," Strickland added.
Wall Street's three main indexes all ended deep in the red, with the Dow shedding more than two percent while the Nasdaq and S&P 500 were more than one percent off.
London, Paris and Frankfurt all lost more than two percent.
And the selling filtered through to Asia, where Tokyo, Shanghai, Hong Kong, Sydney, Seoul, Wellington and Taipei were all in retreat.
The worry on trading floors was reflected in demand for safe-haven assets including US Treasuries, the yen, and gold.
"One of the reasons bonds have rallied so much is that institutional investors have rebalanced out of equities, which have had a huge run, into fixed income," Jim McDonald, of Northern Trust Bank, told Bloomberg Television.
However, he added: "The recent weakness is justified on a short-term basis. If you look at the issue with the delta variant and Covid, it is a short-term concern, but if you look out to the end of the year most of the Western economies will have immunity in the 75-80% range."
Others also remained broadly upbeat about the outlook.
"Those who have been inoculated should still have good protection against the Delta variant, according to the latest hospitalisation and mortality statistics," said JP Morgan Asset Management's Tai Hui.
"Hence, the potential risk to economic reopening is manageable, especially in regions or states where vaccination rates are high."
And Marija Veitmane, at State Street Global Markets, added: "I am firmly in the buy the dip camp".
"Stocks had a very strong first half supported by the earnings recovery and we expect corporate earnings to remain strong."
Oil prices saw small gains but made little headway into yesterday's massive losses caused by worries about the impact on demand from spiking Covid cases and after major producers from the OPEC+ grouping agreed to increase output from next month.
Brent tanked 6.8% and WTI lost 7.5%, leaving both contracts sitting at levels not seen for about eight weeks. – AFP, July 20, 2021
Key figures around 0230 GMT
Tokyo – Nikkei 225: DOWN 0.3% at 27,564.52 (break)
Hong Kong – Hang Seng Index: DOWN 0.7% at 27,297.85
Shanghai – Composite: DOWN 0.7% at 3,515.12
West Texas Intermediate: UP 0.7% at US$66.91 per barrel
Brent North Sea crude: UP 0.3% at US$68.79 per barrel
Dollar/yen: UP at 109.50 yen from 109.46 yen at 2050 GMT
Pound/dollar: UP at US$1.3681 from US$1.3675
Euro/dollar: DOWN at US$1.1800 from US$1.1804
Euro/pound: DOWN at 86.25 pence from 86.29 pence
New York – Dow: DOWN 2.1% at 33,962.04 (close)
London – FTSE 100: DOWN 2.3% at 6,844.39 (close)
