Chinese stocks fall for 2nd day as Covid-19 outbreak grows

Shares in China and Hong Kong fell for the second day as investors grappled with a worsening Covid-19 outbreak on the mainland and reported that Beijing had signaled its willingness to provide Russia with assistance military to support his invasion of Ukraine.

Hong Kong’s benchmark Hang Seng index fell 3%, while China’s CSI 300 index of stocks listed in Shanghai and Shenzhen fell nearly 2%.

The declines followed sharp falls the day before, when Chinese stocks in Hong Kong fell the most since 2008 after authorities imposed lockdowns in several cities, including the technology and manufacturing hub of Shenzhen.

China reported more than 3,500 new cases on Monday, down from less than 1,400 a day earlier. The rise in cases has put pressure on Beijing’s ability to maintain its strict approach to eradicating outbreaks through citywide lockdowns, testing and contact tracing.

Eric Lau, an analyst at Citi, said a week-long lockdown of just a few cities would have limited impact on most businesses. But he warned that the disruption would intensify “if the partial lockdown measures are extended and extended more widely to cover the whole country”.

Investors said a Financial Times report also weighed on markets that the United States has told its allies that China is willing to provide military assistance to Russia.

“If it’s the Americans who are suggesting there’s a risk that China will now support Russia, then it’s a message of ‘You’re either with us or against us,'” a fund manager said. based in Hong Kong at an international asset manager, adding “it’s been a tough journey [for] markets already this week”.

Separately, the People’s Bank of China left medium-term lending rates unchanged after most analysts expected the central bank to cut them by 0.1 percentage point in response to mounting economic pressure and to the disruption caused by the Covid surge.

“The recent outbreak and renewed restrictions, including the lockdown in Shenzhen, will weigh on consumption and cause short-term supply disruptions,” said Tommy Wu, chief economist at consultancy Oxford Economics.

He added that it would be “difficult” to meet China’s official growth target for 2022 solely through previously announced easing measures.

In sovereign debt markets, US government bond yields continued to rise ahead of this week’s two-day Federal Reserve meeting which begins on Tuesday, where the central bank is expected to raise rates for the first time. since 2018.

Yields on 10-year U.S. Treasuries rose 0.01 percentage point to 2.14% on Tuesday, near their highest levels in two years.

Oil prices continued to decline as concerns over supply disruption due to the Russian invasion of Ukraine eased. Brent, the international benchmark, fell 4.1% to $102.53 a barrel.

Futures tipped European stocks at the open, with the Euro Stoxx 50 expected to fall 0.6%. The S&P 500 is expected to rise 0.2%.

Additional reporting by Tabby Kinder in Bangkok

Julio V. Miller