Irish bank shares fell dramatically on Friday, with investors betting that a new variant of Covid-19 detected in South Africa would affect economic growth and delay expected increases in interest rates.
IB fell 8.64% and the Bank of Ireland fell 7.17%, dragging the Dublin market down 4.48%, the worst day for Irish financial stocks since the pandemic started in March 2020.
Ryanair and Irish Continental transport shares also suffered a shelling, losing 12.06% and 4.78% respectively, amid fears of a reinstatement of widespread travel restrictions.
Stocks have fallen around the world and the price of oil has retreated as new coronavirus concerns gripped the markets and money fled to safe-haven bonds and stable currencies like the yen and franc Swiss.
“Financials have been hit hardest here because they recently negotiated very well on improving macroeconomic prospects as well as expectations of a possible interest rate hike over time,” said John Cronin, analyst. senior financier at Goodbody.
“They tend to react more aggressively to news that hits the market more generally. Overall, the flow of information for the sector has been positive, so they forgo some gains on impact [of the variant] on growth, new loans and the interest rate environment.
Low interest rates set by the European Central Bank (ECB) have long weighed on Irish bank stocks, but fears that the recent spike in inflation would persist had raised hopes that the ECB would have to tighten its policy.
However, fear of the virus has prompted euro area money markets to reduce bets on an ECB rate hike next year. Eurozone government bond yields fell, putting pressure on European bank stocks, which fell 6.9%.
Concerns over rising Covid-19 cases had already pulled European stock markets from record highs last week amid fears of further restrictions.
European stocks plunged further amid widespread selling on Friday, as news of a potentially vaccine-resistant strain of coronavirus prompted investors to pull out of riskier assets.
“With Europe and parts of the northern United States in dire straits due to an already high number of new cases and hospitalizations, this new strain of virus is coming at the worst possible time,” said Peter Garnry, Head of Equity Strategy at Saxo Bank.
“The actions are reacting negatively because it is not known at this point how effective the vaccines will be against the new strain, and this therefore increases the risk of further blockages. “
(Reuters additional reports)