Asia Stocks Retreat as Covid’s China Surge, Fed Fears Weigh

Pressure on China’s economy has intensified with news that its services activity contracted at its steepest pace in two years last month, as the Covid surge began

 

Asia’s stock markets struggled on Wednesday amid the deepening Covid situation in China and increasing fears that the US Federal Reserve is poised to hike interest rates more severely than initially thought.

China’s shares dropped as trading resumed after a long weekend, with sentiment dented by the country’s most severe Covid wave since the Wuhan outbreak and a survey showing March services activity contracted at the steepest pace in two years.

“Global investors should be paying more attention to China’s lockdowns,” Nomura analysts said in a note.

Some 23 Chinese cities are now under total or partial lockdown, affecting an estimated 193 million people in areas accounting for 22% of China gross domestic product, according to Nomura’s own survey.

 

Also on AF: China Insiders in US Sell Early, Avoiding Billions in Losses

 

The blue-chip CSI300 index fell 0.3% to 4,263.84 while the Caixin Services Purchasing Managers’ Index (PMI), which focuses more on small firms in coastal regions, dived to 42 in March from 50.2 in the prior month, as the surge in coronavirus cases restricted mobility and weighed on client demand.

However, China real estate developers jumped 2.4%, banks added 1.4%, and infrastructure shares rose 2.8% on expectations of more stimulus to support the economy.

Shares of digital currency-related firms also rose after China’s central bank said it will expand a pilot scheme of its digital currency, e-CNY, to more areas and promote its research and development.

Hong Kong shares sank as investors returned from a one-day break, following the drop on Wall Street fuelled by bets of a more aggressive Federal Reserve drive to tighten monetary policy.

The Hang Seng Index shed 1.87%, or 421.79 points, to 22,080.52. The Shanghai Composite Index was flat, inching up 0.71 points or 0.02% to 3,283.43, while the Shenzhen Composite Index on China’s second exchange also barely moved, edging up 0.14 points to 2,127.96.

Tokyo stocks closed lower with the benchmark Nikkei 225 index dropping 1.58%, or 437.68 points, to end at 27,350.30, while the broader Topix index fell 1.34%, or 26.21 points, to 1,922.91.

 

Nifty 50 Slips

Indian stocks slipped with Mumbai’s signature Nifty 50 index down 0.83%, or 149.75 points, to close at 17,807.65. Sydney, Seoul, Singapore, Mumbai, Manila, Jakarta, Bangkok and Wellington retreated, as did London, Paris and Frankfurt.

Global share prices eased and US Treasury yields hit multi-year highs on Wednesday as investors bet that the US Federal Reserve will couple the shrinking of its balance sheet next month with a big interest rate hike to quell decades-high inflation.

Investors also waited for details of the latest package of coordinated sanctions on Russia from the United States and its allies over the slaying of hundreds of civilians in Ukraine.

The dollar hit its highest in almost two years, while expectations of new sanctions raised oil supply concerns to send crude prices higher.

The STOXX stock index of 600 European companies fell 0.8%, while the MSCI All-Country stock index shed 0.4%.

 

Focus on Fed Minutes

The focus of investors on Wednesday will be on the release of minutes from the Fed’s last policy meeting, out at 1800 GMT.

Grace Peters, EMEA head of investment strategy at JPMorgan Private Bank, said 2022 was probably the last year of above-trend economic growth.

“We are seeing Fed policy rapidly moving into restrictive territory. But we don’t need to ditch equities, it just means we need to be more risk aware. At this point I would buy the dips but move into higher-quality assets,” Peters said.

The rise in bond yields globally has put pressure on gold, which pays no return. Spot gold traded down 0.16% at $1,928.8 per ounce.

Oil prices recovered from early losses as the threat of new sanctions on Russia raised supply concerns, but there were fears of weaker demand following an increase in US crude stockpiles and Shanghai’s extended lockdown.

US crude was up 0.8% at $102.80 a barrel. Brent crude gained 0.9% to $107.61 per barrel.

 

Key figures around 0810 GMT

Tokyo – Nikkei 225 > DOWN 1.9% at 27,080.52 (close)

Hong Kong – Hang Seng Index > DOWN 1.3% at 22,219.85 (close)

Shanghai – Composite > FLAT at 3,283.43 (close)

London – FTSE 100 > DOWN 0.2% at 7,595.54

Brent North Sea crude > UP 0.9% at $107.55 per barrel

West Texas Intermediate > UP 0.7%  at $102.68 per barrel

New York – Dow > DOWN 0.8% at 34,641.18 (Tuesday close)

 

  • Reuters with additional editing by Sean O’Meara

 

Read more:

 

HSBC Raises Stake in Mainland Securities Arm to 90%

 

Key China Services Index Shows Steepest Drop in Two Years

 

Sean OMeara

Sean O’Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.