China stocks drop for 2nd day as Covid-19 outbreak grows

Shares in China and Hong Kong fell for a second day as investors grapple with the worst Covid-19 outbreak in the mainland since the start of the pandemic more than two years ago.

Hong Kong’s benchmark Hang Seng index dropped 2.1 per cent in morning trading, while China’s CSI 300 index of Shanghai- and Shenzhen listed stocks fell 1.1 per cent.

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

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

Eric Lau, an analyst at Citi, said a one-week lockdown of just a few cities would have limited impact on most companies. But he warned that disruptions would escalate “if the partial lockdown measures are prolonged and extended more widely to cover the whole nation”.

Elsewhere in the region, Japan’s Topix rose 0.9 per cent.

Also on Tuesday, the People’s Bank of China left rates for medium-term lending unchanged after most analysts had expected the central bank to cut them by 0.1 percentage points in response to mounting economic pressure and disruption caused by the Covid-19 surge.

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

He added that it would be “challenging” to achieve 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 that starts on Tuesday, where the central bank is expected to raise rates for the first time since 2018.

Yields on 10-year US Treasuries rose 0.03 percentage points to 2.156 per cent on Tuesday, the highest level since mid-2019.

Oil prices continued to drop as concerns over disruption to supplies from the Russian invasion of Ukraine eased. Brent crude, the international benchmark, fell 4.3 per cent to $102.30 a barrel.

Futures tipped European stocks to fall at the open, with the Euro Stoxx 50 expected to shed 0.5 per cent. The S&P 500 was set to edge up 0.2 per cent.


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