Virus fears lead to extensive selling

European stocks plunged amid extensive selling on Friday, as reports of a newly identified and possibly vaccine-resistant coronavirus variant fuelled fears of a fresh knock to the global economy and pushed investors out of riskier assets.

The benchmark STOXX 600 index closed 3.7% down in its worst session since June 2020, while the volatility gauge for the main stock market reached a near 10-month high. Friday’s losses saw the STOXX 600 drop 4.5% this week.

Not much is known of the variant found in South Africa, Botswana and Hong Kong, but scientists said it has an unusual combination of mutations and may be able to elude immune responses or make it more contagious.

France's CAC 40 dropped 4.8%. UK's FTSE 100 shed 3.6%, while Germany's DAX lost 4.2% and Spain's IBEX fell 5.0%.

Among the European stock sectors, travel and leisure dropped 8.8% in its worst day since the COVID-19 shock selloff in March 2020.

Britain announced a temporary ban on flights from South Africa and several neighbouring countries from 1200 GMT on Friday. The European Union is also planning a similar action.

Travel stocks were the worst performers this week, with a drop of 13.6%. Fears over rising COVID-19 cases had removed European stock markets from record highs last week the result of concerns of more restrictions.

The virus scare led to euro zone money markets to reduce the possibility of a rate hike from the European Central Bank next year. Odds of a 10basis point rate hike in December 2022 almost halved from 100% earlier this week. Euro zone government bond yields fell, pressuring European bank stocks, which fell 6.9%.

Oil & gas producers dropped 5.8%, while miners shed 5.0% as oil and metal prices lost ground as reports of the new virus variant led to economic slowdown concerns.

The technology sector had relatively smaller losses, thanks to gains in stay-at-home stocks. Defensives such as healthcare and utilities fell the least.