On Tuesday (15), mainland Chinese companies listed on the Hong Kong Stock Exchange hit their lowest levels since 2008, sinking Chinese shares to 21-month lows.
The performance follows a rise in Covid-19 cases, which threatens the outlook for the world’s second-largest economy and reignites fears of new bottlenecks in the global supply chain.
According to analysts interviewed by Reuters, the crisis in Ukraine was also weighing on sentiment, resurrecting fears about widening differences between Beijing and Washington. This week, the United States raised concerns about China’s alignment with Russia, prompting global investors to ditch overseas-listed Chinese stocks.
Frustration with the country’s central bank’s decision not to cut a key interest rate also enters the equation. Market participants had expected a cut in the MLF rate, a medium-term lending instrument for financial institutions. However, the People’s Bank of China said it would keep interest rates at 2.85%.
As a result, the CSI300 index, which brings together the largest companies listed in Shanghai and Shenzhen, dropped 4.6%, to its lowest since June 15, 2020, while the Shanghai index fell by 5%. Hong Kong’s Hang Seng Index fell 5.7% to its lowest since Feb 12, 2016, with the China Enterprises Index down 6.6% to 6,123.94, its lowest since Oct 29, 2008.
Covid wave could disrupt global chains
The rise in infections recorded in China is likely to further compromise already frayed global supply chains. According to the New York Times, Chinese authorities are imposing restrictions on residents, closing factories and disrupting truck traffic.
The country has adopted a zero-tolerance approach, which sets strict lockdowns and mass testing. As several of the country’s biggest industrial cities are battling outbreaks, these measures are taking a toll on Chinese factories and transport networks.
According to the American newspaper, the sanitary measures are interrupting the production of finished products, such as Toyota and Volkswagen cars and Apple iPhones, as well as components such as circuit boards and computer cables.
In addition, international freight costs, a problem that contributed to global inflation last year, have started to rise again. Ships are facing delays of at least 12 hours in Chinese ports and may have to wait up to two weeks to depart.
(With Reuters and The New York Times)
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