SINGAPORE (BLOOMBERG, REUTERS) - Fears about the economic toll of China’s strict Covid-19-zero policy intensified on Monday (April 25), as news that lockdowns were spreading to Beijing sent stocks, commodities and the renminbi tumbling.
The blue-chip CSI300 index fell 4.9 per cent to a two-year while the Shanghai Composite Index plunged 5.1 per cent to below the key 3,000-point level, a psychological comfort zone for Chinese investors. Gary Ng, Asia Pacific economist at Natixis, said this may trigger further sell-offs if no strong policy announcement is made in the next few days.
Both indexes have erased all gains made since Vice Premier Liu He’s pledge on March 16 to support the economy and financial markets.
Hong Kong’s Hang Seng Index tumbled 3.7 per cent.
The onshore renmimbi fell to its weakest in a year on concerns about rising capital outflows, and oil sank below US$100 on worries over Chinese demand.
Japan’s Nikkei index closed down 1.9 per cent, while South Korea’s Kospi dropped 1.8 per cent.
Singapore’s Straits Times Index fared better on reopening cheer and closed down 0.6 per cent.
A Covid flare-up that shut down much of Shanghai appeared to worsen over the weekend after China ordered mandatory tests in a district of Beijing and locked down some areas of the capital. The news echoed around global markets, with stocks and equity futures under pressure and havens like the US dollar and Treasuries gaining.
There are concerns about the Covid-19 situation in Beijing "evolving into what happened in Shanghai", which hampers the economy, said Mr Kevin Li, portfolio manager at GF Asset Management (Hong Kong).
Traders are baulking at the potential impact of coronavirus restrictions on growth in the world’s second-largest economy, which was already showing signs of slowing down thanks to a property crisis and increased regulation. The growth fears come amid China’s widening policy divergence with the United States, which has led to foreign outflows and weighed on the renminbi.
Global investor nerves were already frayed after traders bolstered bets on a more aggressive pace of rate increases from the Federal Reserve and European Central Bank late last week.
The Covid-19 situation is putting the country into “the darkest moment in economic terms”, said Ms Junheng Li, founder and chief executive of JL Warren Capital.
Wary and weary
The renewed selling comes as investors grow weary about a lack of follow-through on policy promises last month to shore up growth and stabilise markets. Markets shrugged off Friday’s latest policy vow from the People’s Bank of China to ensure stability, which repeated commentary seen in the past month.
Analysts have started downgrading economic growth forecasts for this year below the government’s 5.5 per cent target given the extent of the lockdowns, after a number of manufacturers and carmakers highlighted supply chain disruptions.
China’s strict adherence to Covid-19-zero is also sweeping through commodity markets, with the nation heading for the largest oil demand shock since the early days of the pandemic.
Meanwhile, iron ore tumbled almost 12 per cent in Singapore before paring around half of the drop.
“The sharp price fall is mainly due to the burgeoning Covid-19 impact,” said research director Chen Wen Guang of Lange Steel Information Research Centre, an industry group in Beijing. “(With) lots of areas affected, people are beginning to worry about demand.”