Sensex fell 700 points. Why are stock markets worried about the new variant of the Covid virus?

Indian stock markets fell sharply today along with a similar sell-off in other Asian markets on concerns that a new Covid variant discovered in South Africa may be more contagious than delta. The Sensex is down more than 700 points while Nifty has been struggling near 17,300.

“Just as this tail threat has been melting away into the background, scientists in South Africa have announced that they have discovered a new variant of Covid that could be more transmissible. While the impact on human life has yet to be proven, the reimposition of movement restrictions is likely to hurt The South African Rand (ZAR) has weakened above level 16 for the first time this year,” Kristal.AI, the wealth management platform, said in a note.

In Indian markets, autos, banking and energy stocks were the hardest hit in early trading in Mumbai, with the sub-indices down between 1.5% and 1.7%. Nifty Pharma was the only sub-index that bucked the trend to trade 2% higher.

News of a new alternative to the Covid virus has shaken confidence in stocks, which were already under pressure as traders prepare for the Federal Reserve to begin tightening its monetary policy to stave off rising inflation.

The flare-up of uncertainty also sent safe haven currencies higher with the yen – the go-to unit in times of turmoil – rising against the dollar.

The B.1.1.529 strain has been blamed for a surge in new cases in South Africa and has already emerged in Hong Kong, where the World Health Organization is due to hold a meeting later today to decide whether it should be identified as a form of “interest” or ” anxiety.”

The number of daily infections in South Africa has increased tenfold since the beginning of the month. In response, Britain has banned travel from the country and five other countries in South Africa as concerns grow about a new alternative, which scientists say may be more contagious than Delta and more resistant to current vaccines.

“Unfortunately we have discovered a new species and it is a cause for concern in South Africa,” virologist Tulio de Oliveira said at a hastily convened press conference.

The variant, which has the scientific label B.1.1.529, he said, “has too many mutations.”

The World Health Organization said it was “closely monitoring” the reported form and was expected to meet on Friday to determine whether it should be classified as “of interest” or “of concern”. The World Health Organization added that “early analysis shows that this variant contains a large number of mutations that require and will be subject to further study.”

Analysts say the fact that US markets are closed for Thanksgiving on Thursday and trade will be thinner on Friday “means there is a missing wall of buyers,” which means moves will be increased.

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