HK, mainland stocks dive on China, rate hike fears

Shares in Hong Kong and mainland China plunged Monday on growing fears over the Chinese economy as a fast-spreading Covid outbreak forces lockdowns in major cities, while traders were also worried about an expected sharp hike in US interest rates.

The Hang Seng Index plunged 3.85 percent, or 794.11 points, to 19,844.41.

The Shanghai Composite Index shed 5.13 percent, or 158.41 points, to 2,928.51, while the Shenzhen Composite Index on China's second exchange dived 6.48 percent, or 124.09 points, to 1,790.03.

China's struggle to get a grip on a Covid outbreak that has forced Shanghai-the country's biggest city-into lockdown and dealing a blow to demand. Officials in the finance hub reported 51 deaths Monday, its highest daily toll despite weeks of strict containment measures, while Beijing warned of a "grim" situation as infections rise.

The lockdowns will "cause a logistical problem that's going to affect not just China but also the rest of the world", OANDA's Jeffrey Halley told Bloomberg TV.

Officials' determination to continue with a zero-Covid policy as well as a lack of government stimulus, "that all points to lower China stocks and we are going to see a weaker yuan going forward".

US and European stock markets rose on Thursday, with Tesla shares shooting higher after the electric carmaker reported record profits and airlines soaring as the travel outlook brightened. At the start of trading, Tesla shares rose 10 percent after the company reported a new record in quarterly profits of $3.3 billion on Wednesday.

Elon Musk's high-flying firm said its 2022 output plan was on track despite ongoing supply chain problems and a hit from recent Covid-19 lockdown measures in China.

Tesla "reported much better-than-expected Q1 results and shared some encouraging growth guidance," said Briefing.com analyst Patrick O'Hare.

While many carmakers have been hobbled by a lack of semiconductors, Musk said it "seems likely" the company will produce more than 1.5 million vehicles in 2022, which would be above the company's long-term target of at least 50 percent output growth. A forecast by United Airlines for surging travel demand as the pandemic impact fades helped boost airline shares in Europe and the United States.

Shares in British Airways parent IAG soared 7.7 percent and those in low-cost rival EasyJet jumped 6.2 percent in afternoon trading in London.

France's Air France-KLM stock jumped over four percent and Germany's Lufthansa climbed 5.5 percent in Frankfurt. "The aviation sector is flying higher on expectations of a bumper quarter, after United Airlines posted record guidance for the second quarter," City Index senior markets analyst Fiona Cincotta told AFP.

The aviation sector was ravaged by the Covid crisis that erupted in early 2020, decimating demand and grounding planes worldwide.

Surging oil prices amid the fallout from the Russian war have also acted as a headwind.

"But with demand set to soar over the coming months the likes of IAG and easyJet are being propelled" higher, she said.

United Airlines shares jumped 10.4 percent at the open of trading.

The carrier forecast "the strongest second-quarter revenue guidance in company history" despite logging another Covid-induced loss for the first quarter.

American Airlines, meanwhile, reported another quarterly loss Thursday, but said a recent sharp improvement in bookings should enable it to achieve profitability in the second quarter.

Shares in American airlines climbed 8.2 percent and those in Delta gained 3.8 percent.

"After what has been a very difficult few years for the aviation industry, as a result of lockdowns and alarming inflation, United Airlines' outlook certainly inspired some confidence," XTB analyst Walid Koudmani told AFP.

Wall Street opened higher thanks in part to the positive sentiment driven by Tesla and airlines.