China Covid concerns clobber stocks

Mainland and Hong Kong stocks tumbled yesterday on Covid lockdowns and ensuing disruption to businesses in China, fanning speculation that an interest rate cut or other easing measures could come this week.

The Shanghai SE Composite Index slid by 2.6 percent and Shenzhen Stock Exchange Composite Index fell by 3.33 percent, despite the market regulator reportedly giving guidance to some mutual fund houses, telling them to refrain from selling A-shares on a net basis.

China's markets are confronting multiple challenges at home and abroad, causing investors to sell stocks again despite mid-March vows from authorities to support the economy and the battered property and tech sectors.

Record virus infections in Shanghai, a higher-than-expected jump in factory gate prices, concerns about tech regulations and surging US yields all combined to trigger yesterday's losses.

The State Council pledged last week to use monetary policy tools at an appropriate time to boost the economy, yet no announcement from the People's Bank of China was made yesterday.

This disappointed some investors, said Anli Securities' chairman and chief executive, Andrew Wong Wai-hong.

However, in the current economic situation, supportive policies are expected to be introduced soon.

Kelvin Lau, Greater China senior economist at Standard Chartered, believes the government will cut interest rates as well as the required reserve ratio this quarter, one of which may be announced in the next two weeks, and the other in May or June.

The central bank may choose to cut the rates after the release of economic data later this week, Wong said. Simply trimming the RRR will have little impact on the overall economy if the interest rate remains unchanged, so the authorities may lower the interest rate as well, Wong noted.

But it is still very challenging to achieve the government's annual growth target of around 5.5 percent, even with supportive policies, he added.

Hong Kong's stocks also suffered yesterday with the Hang Seng Index slumping over 660 points.

The tech sector was once again at the forefront of losses, with the Hang Seng Tech Index losing 5.24 percent to a three-week low.

Shares of Xiaomi fell 6.4 percent and Meituan fell 5.8 percent. Tencent and Alibaba's stocks also lost more than 4.3 percent.

China's measures to combat Covid hurt output at its vehicle factories in March, leading to a 10.9 percent year-on-year drop in overall passenger car sales to 1.61 million units, data from the China Passenger Car Association showed.

"The recent pandemic situation has been quite severe and so the figures in March were not too good, and we currently do not see much improvement in April," said Chen Shihua, the association's deputy secretary general.

Electric vehicle maker Nio has suspended production after the country's measures to contain a surge of cases disrupted operations at its suppliers.

Considering the business disruption caused by the lockdowns, the European Union Chamber of Commerce in China has urged the nation to review its Covid policy.

It said yesterday it had sent a letter to the country's cabinet detailing how its Covid control measures had disrupted European companies and urged it to revise its policies, such as by allowing home quarantine for some Covid patients.

Meanwhile, Shanghai started easing its lockdown in some areas yesterday despite reporting a record of more than 25,000 new Covid-19 infections, as authorities sought to get the city moving again.

Shanghai has classed residential units into three risk categories, to allow those in areas with no positive cases during a two-week stretch to engage in "appropriate activity" in their neighborhoods, city official Gu Honghui said.

aiden.he@singtaonewscorp.com