Asian shares dip on concerns over new virus strain

Asian shares pull back from multi-year highs on fears the new virus strain could slow economic recovery.

Asian shares slipped on Tuesday, extending a pullback from multi-year highs hit last week on renewed fears a highly infectious new strain of COVID-19 that shut down much of the United Kingdom could lead to a slower global economic recovery.

Australia’s S&P/ASX 200 index widened losses to be down 0.67 percent. Japan’s Nikkei 225 slipped 0.85 percent.

MSCI’s gauge of Asia Pacific stocks outside Japan fell 0.21 percent. China’s benchmark CSI300 Index and Hang Seng Index opened down 0.2 percent.

“An escalation of European COVID-19 restrictions in response to fears around a new variant, which is supposed to be faster spreading, should, and did, of course, elicit a negative reaction from prices via the near-term global growth impact,” said Stephen Innes, Chief Global Market Strategist at Axi.

The United States Congress late on Monday approved an $892bn coronavirus aid package.

While the bill will provide some relief, it “will do little to accelerate the arrival of an economic recovery,” David Kelly, chief global strategist at JPMorgan Asset Management, said in a note, Bloomberg reported. “Investors should also recognize that, after a surprisingly good year for portfolio returns, asset prices look stretched.”

Borders shut

Countries across the globe shut their borders to the United Kingdom on Monday due to fears of a new strain of coronavirus, said to be up to 70 percent more transmissible than the original, causing travel chaos and raising the prospect of food shortages.

The discovery of the new strain, just months before vaccines are expected to be widely available, renewed fears about the virus, which has killed about 1.7 million people worldwide. As a result, European shares fell on Monday in their worst session in almost two months.

On Monday, US stocks pared much of their early losses during a volatile session on hopes that the long-anticipated stimulus package agreed to by congressional leaders will help spur a stronger recovery.

The S&P 500 ended the day down 0.39 percent at 3,694.92.

Volatility in US equities jumped in thin holiday trading. The Cboe Volatility Index, known as Wall Street’s “fear gauge,” notched its largest one-day gain since late October, even though it finished below its session high.

The British pound weakened amid the continuing Brexit trade talks.

The European border closures came days before the UK is set to exit the European Union’s customs union and single market following a year-long transition period after it formally left the EU.

UK Prime Minister Boris Johnson made a fresh proposal to secure an 11th-hour trade deal with the EU. Europe and regions from Canada to Hong Kong suspended travel links to the UK, as a full lockdown came into force in London and southeast England to contain the coronavirus variant.

Oil prices dropped on expectations of lower demand, with US crude down 0.33 percent at $47.81 per barrel, while Brent was 0.2 percent lower at $50.81.

Spot gold rose 0.3 percent to $1,881.7 per ounce, with the safe-haven asset hitting a one-month high earlier in the session.