Global stock markets nosedive due to surging infection fears

Stock markets faced fresh losses on Friday, capping a painful week for global equities, characterised by fears over surging infections, stuttering vaccine rollouts and the weak economic backdrop.

Traders have been licking their wounds after the worst reversal since October, following a months-long rally that saw several indices strike record or multi-year highs.

Europe’s stocks shed about 1.0 per cent on Friday after disappointing official economic growth data from France and Germany for the virus-plagued fourth quarter.

The dollar traded mixed and oil prices rose, while Bitcoin spiked to a two-week peak at $38,089.94 after Tesla chief Elon Musk changed his Twitter profile to “#bitcoin”.

“Equity benchmarks are in the red ... as nerves have ticked up due to fears that we could be in for another volatile day,” said CMC Markets analyst David Madden.

The French economy shrank 1.3 per cent in the fourth quarter, which was however better than market expectations of a 4.0-per cent slump.

The powerhouse German economy meanwhile grew by a marginal 0.1 per cent, just ahead of forecasts of zero.

“Seeing as Germany’s lockdown has been extended until mid-February and France could be heading for another national lockdown, there is not much hope that growth in the first quarter of 2021 will be impressive,” warned Madden.

“Today’s growth reports highlight the economic impact of the tough restrictions that were introduced at the back end of 2020,” he added.

European stocks meanwhile mirrored similar sized losses across Asia, amid growing concern over the faltering progress of Covid-19 vaccines.

“The mood has become quite gloomy on vaccinations, which may not be surprising given we are in the pandemic’s darkest time so far,” noted Axi strategist Stephen Innes.

“But I think it’s important not to lose sight of what matters from a medical perspective: the vaccines work.”

In Asia, Tokyo stocks shed close to two percent, while Seoul and Manila plunged more than three percent and Jakarta more than two percent.

Hong Kong, Shanghai, Sydney, Singapore and Bangkok suffered sizeable falls as well.

Sentiment was also shattered this week by a David-and-Goliath battle between chatroom-inspired retail traders and Wall Street hedge-fund investors, centred on struggling US video game retailer GameStop.

The saga has seen a number of professional dealers lose billions of dollars.

Wall Street was nevertheless helped by some much-needed good news that fewer Americans than expected made claims for jobless benefits last week.

And data showing the US economy suffered its worst year since 1946 -- while growth tapered in the fourth quarter -- also gave support to calls for lawmakers to pass President Joe Biden’s huge stimulus proposals.

Meanwhile, China’s Kuaishou Technology raised $5.4 billion from its IPO, the top of the range, with offers from retail investors reaching a mammoth $162 billion, nearly half of it backed by margin loans, three people with knowledge of the matter said.

Combining retail and institutional demand, the offering saw total bids worth over $370 billion, more than the gross domestic product of Hong Kong, for the 8.9% of the online video site on offer. The shares were priced at HK$115 ($14.83), two of the sources said, making the company worth $60.9 billion.

The huge demand comes amid growing fears about an asset bubble, with amateur investors boosting the price of assets ranging from cryptocurrencies to new stock market listings.

Those concerns, triggered by a sharp surge in US videogame retailer GameStop and a few other stocks, have led some brokerages globally to raise margin requirements or stop offering leverage for buying securities.

Retail investors bid for more than 1,200 times the amount of Kuaishou shares on offer for them as the book closed on Friday, said the sources, who declined to be named as the information had not yet been made public.

The over-subscription rate means the mom-and-pop investors alone bid for $162 billion worth of stock, while the offering had earmarked just 2.5% of the capital raising, or $135 million worth of stock, for them.

As per Hong Kong’s clawback rules, the retail portion of the IPO will now be enlarged to 6% due to the demand, according to the company’s prospectus. The institutional portion of the book was covered more than 55 times in comparison, two of the sources said.

Brokerages attributed the demand for Kuaishou initial public offering (IPO) of shares as the reason for the Hang Seng Index falling 0.9% on Friday as investors dumped stocks to free up cash.

Kuaishou will debut on the Hong Kong stock market on Feb 5.

The red hot demand for Kuaishou shares from retail investors pushed margin financing applications to buy the company stock past HK$500 billion at just the top banks and brokers.

Individual investors in Hong Kong, which has among the highest retail trading levels in the world, are renowned for borrowing heavily as larger bids boost the chances of being allocated shares in an IPO.