Chinese Stocks Slide as Covid-19 Lockdowns Add to Investor Concerns
The rout in Chinese stocks deepened as the country’s escalating battle with Covid-19 rattled a market already contending with potential U.S. delistings, domestic regulatory pressure and the global economic consequences of the war in Ukraine.
After a recent surge in coronavirus infections, authorities have imposed restrictions on cities including Shenzhen, the southern financial and technology hub where companies such as Huawei Technologies are based.
On Monday, Hong Kong’s flagship
Index fell 5% to register its lowest close since March 2016, while the Hang Seng Tech Index retreated 11%—the benchmark’s biggest one-day percentage decline since it was introduced in July 2020. Stocks in Chinese consumer-facing companies dropped sharply, with major decliners including brewers, property developers, restaurant chains, casino operators and technology platforms.
Figures showed China’s daily count of locally transmitted Covid-19 cases topped 1,000 on Thursday for the first time in roughly two years, before surging above 3,000 and 2,000 on Saturday and Sunday, respectively. The tallies, while low by global standards, are a challenge to China’s zero-tolerance approach to the pandemic.
“The Covid situation in China has deteriorated at an alarming pace over the past week,”
economists said in a note to clients. They warned that China’s economy could be severely hit, with in-person services closed in a rising number of cities, travel growing more difficult, and some construction projects and manufacturing likely to be halted.
Shenzhen has halted public transport and nonessential businesses until at least Sunday as officials carry out three rounds of mass testing. The northeastern city of Changchun, an auto-manufacturing center, introduced similar measures on Friday. In Shanghai, schools have shifted to online classes, while movement into and out of the city has been curtailed.
Hong Kong-listed shares in online-travel agency
fell 17%, as did those of food-delivery company
Macau casino operators retreated, with
falling 13% to 5.12 Hong Kong dollars, a record closing low.
Other stocks registering double-digit percentage declines included developer Country Garden, restaurant groups Haidilao and
and brewer
Monday’s selloff in Asian hours followed heavy losses late last week in both the U.S. and Asia. One U.S. benchmark, the Nasdaq Golden Dragon China Index, fell about 19% over Thursday and Friday, its steepest two-day drop on record, according to Refinitiv.
Last week’s biggest catalyst was the Securities and Exchange Commission’s provisional naming of five China-based companies whose audit papers it can’t inspect, a potential prelude to delisting these groups as early as 2024.
Many Chinese companies have secured second listings in Hong Kong, reducing the immediate impact of any eventual delisting. However, the pool of investors for those firms could shrink, as some investors might not be able to access Hong Kong-listed shares, analysts at debt-research firm CreditSights said.
The lockdowns might have influenced China’s onshore market more than Hong Kong, said Hao Hong, head of research and chief strategist at Bocom International. Holders of Hong Kong-listed shares were likely more focused on the ripple effects of Friday’s U.S. selloff because of delisting concerns, Mr. Hong said.
The CSI 300 index of the largest stocks listed in mainland China closed 3.1% lower Monday.
Chinese tech companies, many of which have a listing in the U.S., make up a sizable portion of Hong Kong’s main benchmark, Mr. Hong said. “As long as they are under pressure, they will drag down the Hang Seng Index,” he said.
Among the biggest tech stocks,
fell 9.8%, while Hong Kong-listed shares in rival Alibaba Group Holding dropped 11%. The Wall Street Journal reported Monday that Tencent was facing a possible record fine from China’s central bank.
An order last month requiring food-delivery companies like Meituan to cut their fees shows how the government is moving to implement goals laid out last year and how the regulatory environment remains uncertain, said Barry Wang, co-portfolio manager at Oberweis Asset Management’s China Opportunities Fund.
Mr. Wang said he sold out of Chinese internet stocks last year and wasn’t ready to reinvest. “I don’t think it’s the right time now because there’s so many uncertainties,” he said. “I would wait until all the dust is settled.”
—Clarence Leong contributed to this article.
Write to Dave Sebastian at [email protected]
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