Fresh China Covid fears pull down Asian shares
HONG KONG: Asian markets fell on Monday as China’s first coronavirus death in six months sparked fears that officials would reimpose strict, economically painful restrictions to fight outbreaks across the East Asian country.
The news threw a spanner in the works for investors who had grown hopeful of a gradual reopening after China eased a number of virus-fighting measures this month.
The death of an 87-year-old man in China’s capital Beijing on Sunday came as infections across the country spiked, testing authorities’ plans to loosen their grip by lowering quarantine times for foreigners and canceling mass tests.
Beijing has in recent days moved to confine some residents to their homes and ordered others to quarantine centers.
“It feels like one step forward, two steps back,” said Willer Chen of Forsyth Barr Asia. “It is super hard to reopen in the short term, given [that] winter is coming and cases are at a super high level and spreading across the whole country.”
The measures dealt a particular blow to Hong Kong’s Hang Seng Index, which fell nearly 2 percent, extending a selloff at the end of last week and eating further into a recent massive rally. Shanghai was also down.
There were also losses in Sydney, Seoul, Singapore, Taipei, Mumbai, Jakarta and Manila. Tokyo, Bangkok and Wellington bucked the trend.
Kuala Lumpur dropped with the ringgit after the Malaysian elections offered no clear winner, fueling uncertainty. European markets opened lower. Investors brushed off a positive end to last week for United States markets, while attention turns to the release later in the week of minutes from the Federal Reserve’s (Fed) most recent policy meeting.
Global markets have enjoyed a broadly healthy November, thanks to signs of China easing and indications of slowing US inflation that fanned optimism the Fed would start to slow its pace of interest rate hikes.
The well-below-forecast readings in the consumer and wholesale indexes suggested months of strict tightening measures were finally working through the economy and having results, allowing for a less hawkish Fed.
But several officials soon lined up to warn that more needed to be done to get inflation back down from four-decade highs to more bearable levels. Brighter outlook?
The sharp rise in interest rates and elevated inflation has this year sent shudders through trading floors as investors fear they would send the US economy into a recession.
In the latest comments, Atlanta Fed chief Raphael Bostic said he saw borrowing costs hitting 5 percent — they are currently at about 4 percent — before they were held.
Boston Fed President Susan Collins remained open to options for the next hike, including a fifth straight 75-basis-point lift.
However, National Australia Bank’s Tapas Strickland said: “That comment by itself sounds hawkish, but Collins overall was more cautious and also expressed confidence that policymakers can tame inflation without doing too much damage to employment.”
“Instead, it was likely that comment coming after a bevy of Fed speakers during the week that added a hawkish hue to it,” he added.
While the mood among traders remains less than bright, there appears to be a feeling that there is some light at the end of the tunnel.
“Whether it’s the time of year or recession uncertainty, few seem inclined to chase the risk rally,” Stephen Innes of SPI Asset Management said.
“Still, there is growing recognition that the consensus view of recession and earnings downgrades could face mitigation from declining inflation,” he added. “A lower dollar, lower volatility and the acknowledgement of having to buy early could improve the risk outlook.”
And Bokeh Capital Partners’ Kim Forrest added that 10-year Treasury yields had tumbled since late October, showing “a softening inflationary environment.”
“The bond market is a little bit smarter about what the Fed needs to do and what it’s going to do. It’s been telling us that the Fed probably won’t be able to get its rates up to five percent nor will it need to,” she told Bloomberg Television.
Demand concerns caused by China’s Covid woes further hit oil prices, with both main contracts in the red, having tumbled last week.