Fears about the economic toll of China’s strict “zero COVID-19” policy intensified yesterday, as news that lockdowns were spreading to Beijing sent stocks, commodities and the yuan tumbling.
The benchmark CSI 300 Index closed nearly 5 percent down to the lowest since April 2020, wiping out gains from a sweeping pledge by officials last month to support the economy. The onshore yuan slumped to its weakest level in 17 months on concerns about rising capital outflows and oil sank below US$100 on worries over Chinese demand.
A COVID-19 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 of more than 20 million people.
Photo: Reuters
Officials have warned of more cases in coming days.
“There are concerns about the COVID situation in Beijing evolving into what happened in Shanghai with some prolonged lockdowns that bites the economy,” said Kevin Li, portfolio manager at GF Asset Management (Hong Kong) Ltd (廣發資產管理香港).
Traders are balking at the potential effects of COVID-19 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 expectations of rapid interest rate hikes from the US Federal Reserve, which could further prompt capital outflows from China and weigh on the yuan.
The COVID-19 situation is putting the country into “the darkest moment in economic terms for the last couple of decades,” JL Warren Capital LLC founder and CEO Junheng Li (李君蘅) told Bloomberg TV in an interview.
The renewed selling comes as investors grow weary about a lack of follow-through on policy promises last month to shore up growth and stabilize 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.
In the stock market, a closely watched support line for the Shanghai Composite Index is under threat. The benchmark fell below the psychologically important 3,000 level after a 5.1 percent slump. An index of Hong Kong-listed Chinese tech stocks were down as much as 5.5 percent.
Corporate debt is not spared from the pessimism either: Chinese high-yield dollar bonds declined as much as US$0.02 on the dollar yesterday, led by developers, credit traders said.
Overseas investors offloaded 45 billion yuan (US$6.86 billion) of stocks last month, the largest outflow in nearly two years, while global funds slashed their holdings of Chinese bonds by the most on record that month.
China’s strict adherence to “zero COVID-19” is also sweeping through commodities markets, with the nation heading for the largest oil demand shock since the early days of the pandemic.
Meanwhile, iron ore tumbled almost 12 percent in Singapore before paring about half of the drop.
“The sharp price fall is mainly due to the burgeoning COVID impact,” said Chen Wen Guang, research director at Lange Steel Information Research Center (蘭格鋼鐵資訊研究中心), an industry group in Beijing. With “lots of areas affected, people are beginning to worry about demand.”
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